Thursday, February 8, 2007

Audit Committee Chairman Accused of Insider Trading by SEC

The SEC filed a civil insider trading case against Donald A. Erickson alleging that he bought call options in Magnum Hunter Resources, Inc. (MHR) while the company was negotiating a possible merger.  At the time of the trading in January 2005, Erickson was a director and chairman of the company's audit committee.  In that role, he was responsible for ensuring that MHR had the requisite internal controls, and so likely was aware of the prohibition on insider trading.  According to the SEC's Litigation Release (here):

In its complaint, the Commission alleges 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 alleges that Erickson was briefed regularly on the status of negotiations and participated in key decisions regarding the Cimarex deal. The complaint also alleges 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.

The Commission also alleges that Erickson's Form 4 (here) filed in connection with the option purchase was false because it did not disclose the actual date of the transaction, instead listing it as occurring on January 31, 2005, after the announcement of the deal.  (ph)

http://lawprofessors.typepad.com/whitecollarcrime_blog/2007/02/audit_committee.html

Civil Enforcement, Insider Trading, Securities | Permalink

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