Securities Law Prof Blog

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

Thursday, September 20, 2012

SEC Emphasizes Cooperation in Settling Insider Trading Charges

In an SEC release announcing the settlement of insider trading charges brought against a former director and two tippees, the SEC emphasized that "Early Cooperation Receives Lesser Penalty." 

The SEC alleged that H. Thomas Davis, Jr. breached his fiduciary duty to Mercer Insurance Group and its shareholders when he shared confidential details about the company’s negotiations to be acquired by United Fire. Davis tipped his friend and business associate Mark W. Baggett, and Baggett later tipped his golfing partner Kenneth F. Wrangell. Baggett and Wrangell made more than $83,000 in illicit profits when they traded on that confidential information illegally.

According to the SEC release:

When contacted by SEC investigators about his suspicious trading, Wrangell promptly offered significant cooperation. He provided truthful details acknowledging his own trading and entered into a cooperation agreement that resulted in direct evidence being quickly developed against Baggett and Davis. This cooperation enabled the SEC to swiftly reach settlements with all three individuals to recover ill-gotten monetary gains.

“By making the choice to cooperate with the SEC and voluntarily provide all of the necessary evidence at the outset of the investigation, Wrangell saved the SEC time and resources and himself a larger penalty,” said William P. Hicks, Associate Director in the SEC’s Atlanta Regional Office.

In settling the SEC’s charges, Davis agreed to be jointly and severally liable for disgorgement of Baggett’s insider trading profits of $41,584.45 plus prejudgment interest as well as to pay a penalty of $41,584.45. Davis also agreed to be barred from serving as an officer or director of a publicly-traded company. Baggett agreed to pay disgorgement and a penalty in amounts that will be determined by the court. Wrangell agreed to fully disgorge his ill-gotten gains of $42,521.55 plus prejudgment interest. Due to his extensive cooperation, the additional penalty that Wrangell is required to pay on top of that disgorgement amount has been reduced to $11,380.39. All three neither admit nor deny the allegations, and their settlements are subject to court approval.

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