The Securities and Exchange Commission has charged an accounting firm partner in Atlanta with insider trading in the stock of a client’s restaurant company while tipping off other clients, and he agreed to pay over $124,000 to settle the charges.
The SEC alleged that Donald S. Toth, a 59-year-old CPA, disregarded his fiduciary duty to a client when he illicitly purchased stock in O’Charley’s Inc.—which operates restaurant franchises under the brand names O’Charley’s, Ninety Nine Restaurant, and Stoney River Legendary Steaks—after the client on the board of directors revealed to him in a tax-planning meeting that Fidelity National Financial was planning to purchase the company. The client came to Toth for tax advice in advance of the tender offer announcement, according to the SEC.
Toth contacted his financial advisor within an hour after the meeting with the O’Charley’s board member and began making plans to purchase 5,000 shares of O’Charley’s stock, according to the SEC.
SEC investigators also identified and charged others who traded illegally based on tips from Toth and his clients. The SEC discovered their activities by comparing trading records from stock exchanges with names on Toth’s client list.
Toth tipped off two other clients, James A. Nash and Blair G. Schlossberg, about the impending plans at O’Charley’s. Nash purchased 10,000 shares and tipped others who separately traded. Schlossberg tipped his business partner Moshe Manoah, and they jointly invested in O’Charley’s stock using a brokerage account held in the name of Manoah’s wife.
According to the SEC’s complaints filed against Toth, Nash, Schlossberg and Manoah, when the tender offer was publicly announced approximately two months later, the price of O’Charley’s stock closed 42 percent higher than the previous trading day. The insider trading activity garnered illegal profits of more than $160,000.
The four have agreed to pay a combined total of more than $420,000 to settle the SEC’s charges.
“As an accountant, Toth had a duty to keep confidential the information shared by his client for tax-planning purposes, but instead he misused it for personal investments and provided the details to other clients for their misuse,” said William P. Hicks, associate director of enforcement in the SEC’s Atlanta Regional Office, in a statement.
The SEC’s complaints were filed against Toth and Nash Wednesday in federal court in Atlanta and against Schlossberg and Manoah Thursday in federal court in Tampa, Fla., charging them with violating the securities laws. Without admitting or denying the allegations, they consented to the entry of judgments permanently enjoining them from violating these provisions of the securities laws. The settlements are subject to court approval.
Toth, who lives in Atlanta, agreed to pay disgorgement of $19,036.00 in trading profits plus prejudgment interest of $1,224.09 and a penalty of $103,935.50 for a total of $124,195.59.
Nash, who lives in Buford, Ga., agreed to pay disgorgement of $52,500.00—which represents his own trading profits and those of others who he tipped—plus prejudgment interest of $3,375.96 and a penalty of $52,500.00 for a total of $108.375.96.
Schlossberg, who lives in Holmes Beach, Fla., agreed to pay disgorgement of $46,358.50 in trading profits plus prejudgment interest of $2,981.02 and a penalty of $46,358.50 for a total of $95,698.02.
Manoah, who lives in Davie, Fla., agreed to pay disgorgement of $46,358.50 in trading profits plus prejudgment interest of $2,981.02 and a penalty of $46,358.50 for a total of $95,698.02.