Securities Law Prof Blog

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

Wednesday, September 17, 2008

SEC Charges Individuals with Insider Trading in Georgia-Pacific Stock

The SEC filed a Complaint in the United States District Court for the Northern District of Illinois against James D. Zeglis (“Zeglis”) and Gautum Gupta (“Gupta”), Lance D. McKee (“McKee”) and Jim W. Dixon (“Dixon”) alleging insider trading in the securities of Georgia-Pacific Corporation.  According to the Complaint, Zeglis misappropriated material nonpublic information from his brother, a member of Georgia-Pacific’s board of directors, and on November 10, 2005, three days before a public announcement that Georgia-Pacific had agreed to be acquired by Koch Industries, Inc., Zeglis tipped Gupta and Dixon, both of whom purchased Georgia-Pacific securities. Gupta, in turn, tipped McKee, who also purchased Georgia-Pacific securities.  Moreover, according to the complaint, after Zeglis tipped Dixon, Dixon purchased Georgia-Pacific options on Zeglis’s recommendation and paid Zeglis a kickback from his ill-gotten gains. On November 13, 2005, Koch Industries, Inc. (“Koch”) publicly announced a definitive agreement for a cash tender offer for all shares of Georgia-Pacific. The following day, Georgia-Pacific’s stock price increased 36% in response to the announcement. Gupta and McKee then sold their Georgia-Pacific securities, realizing profits of $689,401 and $7,157.60, respectively. Dixon also realized a profit of $116,000 from the sale of Georgia-Pacific options. Thereafter, over the course of several months, Dixon paid Zeglis approximately $25,000 of his profits.

With its complaint, the Commission also filed stipulated consents to final judgments by defendants McKee and Dixon. The judgments to which McKee and Dixon have consented would, when entered by the Court, compel each of them to pay full disgorgement of their respective ill gotten gains with prejudgment interest thereon. In addition to his disgorgement, McKee has consented to pay a civil penalty in the amount of his ill-gotten gain, and Dixon has consented to pay a civil penalty in the amount of $50,000.

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