First Enforcement Case Involving Security-Based Swaps

SEC v. Langford, Civil Action No. cv-08-B-0761-S (N.D. Ala. April 30, 2008) is the Commissions first enforcement action involving security-based swap agreements – a derivative which in this case involved an agreement to exchange periodic interest rate payments on an amount of debt. It is also involves the sale of municipal bonds as in In the Matter of City of San Diego, Release No. 8751, Admin. Proceeding File No. 3-12478 (Nov. 14, 2006), previously discussed here.

The complaint in Langford is a based on a kickback scheme involving four persons: Larry Langford, the current mayor of Birmingham, Alabama; William Blount, the co-owner and chairman of Blount Parris, a municipal securities broker-dealer registered with the SEC, which is also a defendant; and Albert LaPierre, a lobbyist registered with the State of Alabama and a former executive director of the Alabama Democratic Party. The complaint is based on fees and payments made in connection with five County and offerings and four security-based swap agreements in 2003 and 2004.

Messrs. Langford, Blount and LaPierre have a years-long personal relationship. Prior to June 2002 when Mr. Langford was elected County Commissioner, Blount Parrish had not had any County municipal bond work in years. Following the election Mr. Blount began making payments and conferring benefits on Mr. Langford through defendant LaPierre. Those payments exceed $156,000 over a two year period.

Once Mr. Langford became Chairman of the County Commission, Blount Parrish participated in every Jefferson County municipal bond offering and security-based swap agreement transaction over a two-year period. This included five municipal bond offerings in which Blount Parrish participated as lead or co-underwriter or as a remarketing agent and four security-based swap transactions. The bond firm earned over $6.7 million in fees. In these transactions, the payments between Messrs. Langford and Blount were not disclosed to the County, according to the complaint.

The complaint, which alleges violations of the anti-fraud provisions as well as Exchange Act Section 15B and rules of the Municipal Securities Rulemaking Board, seeks permanent injunctions, disgorgement, prejudgment interest and penalties. The case is in litigation. The SEC’s investigation is also continuing.

The Campaign Against Insider Trading Continues

The SEC’s campaign against insider trading continued this week, extending trends from last year. Two cases filed this week based on trading in advance of take-over announcements involved, respectively, a father and son and a corporate director and an attorney in private practice.

Another family trading together. In SEC v. Norton, Civil Action No. 2:08-CV-541 (D. Nev. April 29, 2008), the Commission filed a settled insider trading case against a father and a son. The SEC’s complaint focuses on trading in advance of the take-over announcement of Valley Bancorp by Community Bancorp. Community Bancorp director Charles R. Norton learned that the bank was about to acquire Valley Bancorp at a board meeting. Subsequently, Chad Norton, the son of Charles Norton, purchased 7,000 shares of Valley Bancorp stock prior to the announcement of the take-over. After the announcement the shares were sold yielding a profit of $35,064.71.

To settle the action, the father and son consented to the entry of permanent injunctions prohibiting future violations of the anti-fraud provisions. Chad Norton also agreed to the entry of an order directing that the trading profits be disgorged and requiring the payment of prejudgment interest and a civil penalty equal to the trading profits. Charles Norton also consented to the entry of an order requiring that he pay a penalty equal to the trading profits and a five year officer/director bar. This is the latest in a series of family insider trading cases. Last year, the SEC brought a number of actions frequently referred to as “pillow talk” cases which involved allegations of insider trading by spouses and in some instances family members that were insider trading rings as discussed here.

Another director and attorney. In SEC v. Boshell, Civil Action No. 08-CV-2392 (N.D. Ill. April 28, 2008) the Commission filed a settled insider trading case against a corporate director and outside counsel. This case is also based on trading in advance of the public announcement of a takeover, in this instance the acquisition of Laserscope by American Medical Systems Holding, Inc.

According to the complaint, defendant Edward Boshell, a director of American Medical Systems, learned during a board meeting that the company would acquire Laserscope. Defendant Donald Pochopien was a shareholder of a Chicago law firm that served as counsel to American Medical in the due diligence review of the potential Laserscope acquisition. Prior to the public announcement of the acquisition, both defendants traded in the securities of Laserscope. Mr. Boshell made profits of over $85,000 while Mr. Pochopien is alleged to have made profits of over $134,000.

To settle this action, both defendants consented to the entry of statutory injunctions prohibiting future violations of the antifraud provisions and orders requiring the payment of disgorgement, prejudgment interest and civil penalties equal to the amount of the disgorgement. This case, like the Norton case, continues a trend from last year when a number of insider trading cases were brought against corporate directors and attorneys as also discussed here.