Securities Law Prof Blog

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

Thursday, April 17, 2008

SEC Settles Allegations that Trader Misappropriated Information From Brother-in-Law

The SEC settled a civil action in the U.S. District Court for the Southern District of New York against Michael A. Stummer alleging illegal trading in the common stock of Ryan's Restaurant Group (Ryan's).  The complaint charges Stummer with fraudulently obtaining material, non-public information about the impending acquisition of Ryan and then using that information to trade Ryan's securities. The Commission complaint alleges that on July 21, 2006, Stummer and his family arrived at the New York home of his brother-in-law for an annual weekend gathering. At this time his brother-in-law served as director of the private equity firm advising the acquiring company on the impending Ryan's transaction. During the weekend visit, Stummer snuck into the brother-in-law's bedroom office, where, secretly and without permission, he accessed his brother-in-law's bedroom office computer. By correctly guessing his brother-in-law's password, Stummer deceptively gained unauthorized access to the private equity firm's computer network and read several confidential and nonpublic emails relating to the Ryan transaction.

Without admitting or denying the Commission's allegations, Stummer consented to the entry of a final judgment permanently enjoining him from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The final judgment also requires Stummer to pay $46,386.66, representing the disgorgement of his illegal trading profits, prejudgment interest, and a civil penalty in an amount equal to the profits.

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