One or More Unknown Purchasers of the Call Options for the Common ...

Tag : Emergency Call


CORRECTED U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 20654 / July 25, 2008 Securities and Exchange Commission v. One or More UnknownPurchasers of the Call Options for the Common Stock of DRSTechnologies, Inc. and American Power Conversion Corp. , United States District Court for the Southern District of NewYork, Civil Action No. 08-cv-6609 (UA) (S.D.N.Y. July 25, 2008) SEC Obtains Emergency Asset Freeze Against Unknown Call OptionsPurchaser
The Securities and Exchange Commission today filed an emergencyaction in the United States District Court for the SouthernDistrict of New York against one or more unknown purchasers of thecall options for the common stock of DRS Technologies, Inc. andAmerican Power Conversion Corp. ("Unknown Purchaser"). TheCommission's complaint alleges that the Unknown Purchaser reapedmore than $3 million in profits by engaging in illegal insidertrading, prior to announcements related to the acquisitions of DRSand APCC, through an account with UBS AG ("UBS").
The Commission also filed an application for a temporaryrestraining order in order to freeze the Unknown Purchaser'sassets. The Honorable Alvin K. Hellerstein, United States DistrictJudge in the Southern District of New York, issued a temporaryrestraining order freezing the Unknown Purchaser's assets.
The Commission's complaint alleges that while in possession ofmaterial, nonpublic information regarding merger talks between DRSand Finmeccanica S.p.A, the Unknown Purchaser acquired DRS calloptions. According to the complaint, between April 29, 2008 and May7, 2008, the Unknown Purchaser bought 1,820 DRS call options thatwere out-of-the-money and set to expire in the near term forslightly more than $456,200. The complaint alleges these purchasesconstituted a very significant percentage of the series volume forDRS call options on the days in question.
The Commission's complaint further alleges that immediatelyfollowing a May 8th Wall Street Journal article reporting theadvanced merger negotiations between Finmeccanica and DRS, andafter confirmation by DRS that it was engaged in talks regarding apotential strategic transaction, the Unknown Purchaser liquidatedall DRS call options and made an ill-gotten profit of approximately$1.6 million. Finmeccanica later announced on May 12, 2008 that itwould acquire DRS for $5.2 billion, or $81 a share.
Additionally, the Commission's complaint alleges that, while inpossession of material, nonpublic information regarding SchneiderElectric SA's plans to acquire APCC, the Unknown Purchaser acquiredAPCC call options. According to the complaint, between September 21and October 20, 2006, the Unknown Purchaser bought 2,830 APCC calloptions at a cost of approximately $343,000. The complaint allegesthese purchases constituted a very significant percentage of theseries volume for APCC call options on the days in question.
The Commission's complaint further alleges that followingSchneider's announcement on October 30, 2006, that it would acquireall of APCC's outstanding shares for $31 a share, the UnknownPurchaser liquidated all APCC call options and made an ill-gottenprofit of approximately $1.7 million.
By virtue of the conduct described above, the Commission alleges inits complaint that the Unknown Purchaser violated Section 10(b) ofthe Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Thecomplaint seeks a permanent injunction, disgorgement of ill-gottengains with prejudgment interest, and civil money penalties.
The Commission previously filed a complaint alleging that anItalian citizen engaged in insider trading in DRS securities aheadof the same May 8th disclosure of the merger negotiations betweenDRS and Finmeccanica. See SEC v. Cristian De Colli , 08 Civ. 4520 (PAC) (S.D.N.Y. May 15, 2008). For more informationabout that action, see Litigation Release No. 20581 (May 16, 2008).
The Commission acknowledges the assistance of the Swiss FederalBanking Commission, the U.S. Department of Justice, and the OptionsRegulatory Surveillance Authority (ORSA) in this matter.
The Commission's investigation is continuing.
SEC Complaint in this matter
http://www.sec.gov/litigation/litreleases/2008/lr20654.htm