Thursday, July 16, 2009

Securities: SEC Charges Six with Insider Trading in Miami Acquisition

The Securities and Exchange Commission has filed a complaint in federal court in Miami alleging insider trading by six individuals. The trades involved the stock of the Neff Corporation. In early 2005 Neff agreed to the acquisition offer of Odyssey Investment Partners, LLC. Several individuals with knowledge of the upcoming merger purchased Neff stock prior to the public announcement of the merger and then sold their holdings after the announcement for substantial profits.

Interestingly, the SEC's complaint does not allege an overarching scheme to profit from insider trading. Instead, the complaint sets forth four independent insider trading acts. Moreover, the complaint does not allege specific instances of the passing of material nonpublic information. Rather, it describes the relationships of individuals to corporate insiders, emphasizing the timing of the defendants' contacts with the insiders and the timing of the subsequent purchases of Neff stock. It seems from the complaint that the SEC is proceeding on largely circumstantial evidence to draw a compelling conclusion that the defendants traded on the basis of material nonpublic information.

The most direct evidence appears to exist against Kevan Accord, Esq., and Philip Growney, an accountant who, as outside tax consultants for Neff, provided information to Odyssey during the course of the acquisition's due diligence.

A second scheme allegedly involved the brothers Alberto and Jose Perez. The complaint alleges that these brothers were close real estate and business advisers of Neff's CEO and his brother. Alberto maintained an office on Neff's executive floor where the deal's due diligence was taking place. The complaint alleges that through his proximity to the people working on the acquisition Albert was able to misappropriate the material nonpublic information about the deal.

The third scenario charges the father-in-law of Neff's CEO with insider trading. Sebastian De La Maza's daughter is married to Neff's CEO. The complaint alleges that the families are very close and that De La Maza obtained nonpublic information through conversations with his daughter. Then, he profited by trading on that information.

The last scheme is one involving a longtime friend, Thomas Borell, of a Neff director, who is also the brother of Neff's CEO. During a period of the most sensitive negotiations Borell and his family and the Neff director and his family vacationed together. Then, Borell began buying Neff stock, allegedly in anticipation of the acquisition announcement.

Most SEC enforcement actions settle before trial by consent without findings of fact or law. It will be interesting to see if this suit follows the same pattern or becomes one of the few that go to trial.

For an article about the case please go to the Miami Herald website at

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