Securities Law Prof Blog

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

Monday, November 3, 2008

Former Magnum Hunter Resources Director Settles Insider Trading Charges

On October 31, 2008, the United States District Court for the Northern District of Texas entered a final judgment against Donald A. Erickson (Erickson), the former audit committee chairman and a former director of Magnum Hunter Resources, Inc. (MHR) for unlawful insider trading in the securities of MHR ahead of the January 26, 2005 announcement of merger between MHR and Cimarex Energy Company (Cimarex). The judgment permanently enjoins Erickson from violating the antifraud provisions and certain reporting provisions of the federal securities laws (Sections 10(b) and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 16a-3(a), and 16a-3(g)(1)) and finds Erickson liable for disgorgement of $46,200, plus prejudgment interest of $11,399.67. Erickson consented to the entry of the judgment regarding the injunction and disgorgement without admitting or denying the allegations in the Complaint. Further, the Court found Erickson liable for a civil penalty of $46,200 based on Erickson's illegal insider trading and permanently barred Erickson from acting as an officer or director of a public company.

In its complaint the SEC alleged that in late December 2004, Donald A. Erickson, while serving as audit committee chairman and a director of MHR, purchased MHR call options during the time MHR was exploring a possible merger or sale of the company. The Complaint alleged that Erickson was briefed regularly on the status of negotiations and participated in key decisions regarding the Cimarex deal. The Complaint also alleged that in mid-January 2005—just two trading days before the public announcement of the merger, and one day after he attended a board meeting addressing the status of negotiations with Cimarex—Erickson exercised his call options and acquired 30,000 shares of MHR stock. According to the Commission, Erickson purchased and exercised the options based on material, nonpublic information about MHR's merger negotiations and, ultimately, the Cimarex deal.

Further, the Commission alleged that Erickson failed to report to the Commission his purchases of MHR call options, a requirement for corporate insiders. In addition, the Commission alleged that Erickson was late in disclosing to the Commission the exercise of his options, and further alleges that his ultimate disclosure was materially false—indicating, incorrectly, that he had exercised the options after the merger announcement.

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