Thursday, September 27, 2007
The SEC filed a settled insider trading case against a consultant for Frederick's of Hollywood for buying stock in Movie Star, Inc., before the announcement of a deal. The two firms are leaders in the intimate apparel market -- I will abjure further comments -- and the merger was announced on December 19, 2006. The defendant participated in the merger negotiations, and according to the SEC Litigation Release (here):
[B]etween September 14 and November 20, 2006, Keeney made over a dozen purchases totaling 157,000 Movie Star shares at an average cost basis of $0.97 per share, on the basis of material, nonpublic information concerning both the possible merger as well as the financial projections for Movie Star he had received in the course of the merger discussions. On December 19, 2006, both Movie Star and Frederick's publicly announced that the two companies had entered into a merger agreement. That same day, the price of Movie Star shares increased to close at $1.46. As a result, the complaint alleges, Keeney had imputed illicit profits of $77,540.50 from his unlawful trading.
The defendant agreed to disgorge profits (plus interest) of $81,210.96 and pay a one-time civil penalty. (ph)