Securities Law Prof Blog

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

Tuesday, June 19, 2007

SEC Settles Insider Trading Case Against Former Sadia Director

The SEC filed a settled civil injunctive action in the United States District Court for the District of Columbia against Romano Ancelmo Fontana Filho, a former Director at Sadia S.A. ("Sadia"), a Brazilian food products company. The Commission charged Fontana with engaging in illegal insider trading both by purchasing securities of Perdigão S.A. ("Perdigão") prior to Sadia's tender offer for Perdigão and by selling the same securities of Perdigão prior to Sadia's subsequent revocation of the tender offer. Without admitting or denying the allegations in the Commission's complaint, Fontana has consented to the entry of a final judgment imposing injunctive and monetary relief and barring him from acting as an officer or director of a publicly traded company for a period of five years.  The Commission's complaint alleges that Fontana learned of the contemplated tender offer on April 26, 2006, through a conversation with the chairman of Sadia's board of directors. According to the complaint, Fontana subsequently purchased 18,000 American Depositary Shares ("ADSs") of Perdigão at an average cost of $19.12 per ADS through three transactions executed between July 5 and 12, 2006, on the basis of material, nonpublic information concerning the proposed acquisition, and in breach of a duty of trust and confidence he owed to Sadia. On Sunday, July 16, 2006, Sadia announced the tender offer for Perdigão. The following day, the price of Perdigão ADSs increased to $24.50, up $4.25 (21%) from the previous closing price. On the morning of July 21, 2006, Fontana participated by conference call in a meeting at which Sadia's board of directors decided to revoke the tender offer. As the complaint alleges, after this meeting — but before Sadia announced the revocation later that day — Fontana sold all 18,000 ADSs of Perdigão at an average selling price of $26.85 per ADS. By selling in advance of the public announcement of the revocation, the complaint alleges, Fontana again engaged in illegal insider trading, in breach of a duty of trust and confidence he owed to Sadia. The complaint alleges that Fontana realized ill-gotten profits of $139,114.50 from his unlawful trading.

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