SEC Settles Insider Trading Matter against Former FleetBoston Employee
The Commission filed an emergency enforcement action against Simon on Monday, October 28, 2003, only hours after Bank of America announced its acquisition of FleetBoston, and less than three days after Simon purchased FleetBoston securities. In its complaint, filed in the United States District Court for the District of Massachusetts, the Commission alleged that Simon engaged in illegal insider trading when he bought FleetBoston securities late on Friday, October 24, while in possession of material, non-public information about the acquisition that was announced the next trading day. The day it filed its complaint, the Commission also sought a temporary restraining order and asset freeze against Simon. Judge Nancy Gertner granted the order freezing Simon's trading account and prohibiting him from transferring or disposing of the securities or any trading proceeds. The Commission obtained the order before the transaction was concluded and as a result, was able to freeze the account before any profits could be removed or dissipated.
Walter G. Ricciardi, District Administrator for the SEC's Boston District Office, said, "The Commission's quick action in this matter reflects its commitment to pursue and punish insider trading wherever it occurs if it harms the U.S. markets."
Specifically, the Commission's complaint alleged that Simon, a former employee at FleetBoston's Buenos Aires office, purchased 1100 November FleetBoston call options during the last hours of trading on Friday, October 24, 2003, at a cost of about $11,000. The complaint alleged that Simon's options purchase represented over 50% of the total trading volume in that series of call options that day. The complaint alleged that before the market opened on Monday, October 27, FleetBoston's acquisition was announced. In the wake of the announcement, the price of FleetBoston=s stock and call options rose dramatically, with Simon's call options increasing in value by $473,000 as of the close of the day. The complaint alleged that Simon's conduct violated Section 10(b) of the Securities Exchange Act and Rule 10b-5.
Without admitting or denying the allegations in the Commission's complaint, Simon consented to the final judgment entered by the court on June 9 in this matter. The judgment permanently enjoined him from future violations of Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. Simon was also ordered to pay disgorgement of $473,000, prejudgment interest of $1,576.67, and a civil penalty of $51,842.36, representing the entire proceeds frozen by the court.
In its complaint, the Commission had also named Simon's wife and brother, who shared the account through which Simon traded, as co-defendants. The Commission dismissed the claims against them with prejudice.