Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, June 13, 2007

Attorney Settles Insider Trading Charges Involving Client's Stock

The SEC today filed a settled civil injunctive  action  against  David  A. Schwinger, an attorney and former managing partner  of  Katten  Muchin Rosenman LLP's (KMR) Washington, D.C. office.  Schwinger  was  charged with engaging in illegal  insider  trading  by  purchasing  shares  of Vastera, Inc. (Vastera).  The complaint alleges that Schwinger purchased Vastera common stock on Nov. 5, 2004, on the basis of material, nonpublic information that  an acquisition of Vastera was imminent.  The  complaint  further  alleges that Schwinger learned of  the  impending  merger  while  interviewing  Vastera's Chief Counsel, who was then seeking to be hired by KMR as  a partner. In responding to Schwinger's inquiries during  the  interview process about the Chief Counsel's reasons  for  leaving  Vastera,  the Chief Counsel allegedly disclosed to Schwinger no later than Oct.  27, 2004, that Vastera's acquisition was imminent. On the  basis  of  that material, nonpublic information, the complaint alleges that  Schwinger purchased 10,000 shares of Vastera common stock on Nov. 5, 2004, at an average price of $1.70 per share. The complaint further  alleges  that Schwinger knew that Vastera was a  KMR  client  at  the  time  of  the purchase.  According to the complaint, Vastera announced on Jan. 7, 2005, that it was being acquired by JP Morgan Chase Bank N.A. The complaint alleges that Schwinger knew,  or  was  reckless  in  not knowing, that he purchased Vastera shares based on material, nonpublic information obtained during the interview process and in breach  of  a fiduciary duty owed to his firm, KMR.  Schwinger  is  alleged  to  have imputed profits of $13,027. Without  admitting  or  denying  the  allegations  in  the  complaint, Schwinger has consented to the entry of a  final  judgment  that:  (i)permanently enjoins him from violating Section 10(b) of  the  Exchange Act and Rule 10b-5 thereunder; (ii) requires him to  disgorge  $13,027 in illicit gains and $1,940 in prejudgment interest thereon; and (iii)orders him to pay a civil penalty of $26,054.

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