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

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Saturday, May 17, 2008

SEC Obtains Freeze of Assets in Alleged Insider Trading Case

The SEC filed an emergency civil action in the United States District Court for the Southern District of New York against Cristian De Colli, a machinery engineer residing in Rome, Italy, alleging that he engaged in insider trading from which he reaped more than $2.1 million in illicit profits from highly suspicious trading in his U.S. brokerage account in the securities of DRS Technologies, Inc., prior to the public disclosure of advanced merger negotiations.  The SEC also filed an application for a temporary restraining order in order to freeze De Colli's assets in the United States, and the court issued a temporary restraining order freezing De Colli's assets in the U.S., including his brokerage account.

According to the Complaint, De Colli purchased 5,700 shares of DRS common stock from April 10 to April 29, 2008, and 3,116 call options for the common stock of DRS between April 15 and May 7, 2008. De Colli purchased more than 2,400 of the call options on May 6 and May 7, including certain options that were out-of-the-money by over $6 and which expired ten days after purchase. On April 28, 2008, De Colli liquidated securities that he had purchased in two other companies a week earlier in order to purchase additional DRS options. At that point, 100 percent of the holdings in De Colli's U.S.-based brokerage account consisted of DRS call options and DRS stock.

The SEC's complaint further alleges that immediately following a May 8th Wall Street Journal article reporting the advanced merger negotiations and after confirmation by DRS that it was engaged in talks regarding a potential strategic transaction, De Colli liquidated all of his call options and made his ill-gotten profit of more than $2.1 million on his initial investment of approximately $422,000. Finmeccanica later announced on May 12, 2008 that it would acquire DRS for $5.2 billion, or $81 a share.

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