Monday, January 24, 2005

How Small Is a Small Insider Trading Case?

The extent to which the SEC polices the securities markets regarding insider trading is shown by a recent Commission settlement of a civil injunctive action in which the defendant agreed to disgorge $1,969 of illegal trading profits, $338 in prejudgment interest, and a $1,969 civil penalty (a total of $4,276 for those scoring at home).  The SEC Litigation Release states that Mark J. Lauzon engaged 

in insider trading in the securities of Musicland Stores Corporation ("Musicland") before Musicland's December 7, 2000 announcement that it would be acquired by another company by tender offer. The Commission's complaint alleges that Alfred S. Teo, Sr. ("Teo"), a major Musicland shareholder, learned about the proposed tender offer for Musicland, and then tipped Lauzon and others with this information. According to the Commission's complaint, approximately two hours after Teo tipped Lauzon on November 9, 2000, Lauzon purchased 500 shares of Musicland stock, which he sold on December 11, 2000, and received $1,969 in illicit profits.

A pretty modest amount for an insider trading case, although it is part of a larger complaint by the SEC alleging that Teo's tipping resulted in total profits of over $1.8 million by a number of tippees (see earlier Litigation Release here).  The message here appears to be that no one should think that they can fly beneath the SEC radar. (ph)

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