SEC Charges Georgia CPAs with Insider Trading
The Securities and Exchange Commission filed a civil injunctive action against a pair of Georgia CPAs, accusing them of insider trading.
The SEC alleges that Thomas D. Melvin and R. Jeffrey Rooks, who were partners in the firm Melvin, Rooks and Howell in Griffin, Ga., disclosed material nonpublic information about the pending tender offer for Chattem, Inc. securities. The Commission also alleges that Rooks tipped one other individual that he traded in the securities of Chattem based on that material nonpublic information and caused the other individual to also trade.
According to the SEC, French pharmaceutical company Sanofi-Aventis announced its intent on Dec. 21, 2009 to make a tender offer for Chattem, a Tennessee-based distributor of over-the-counter pharmaceutical products, at the price of $93.50 per share. Shares of Chattem closed 32.60 percent higher on the day of the announcement than the prior trading day’s close of $69.98, while volume increased more than 3,000 percent to 10.3 million shares.
The SEC alleges that in early December 2009, several weeks before the announcement, an independent board member of Chattem who owned Chattem options that would automatically exercise in the event of an ownership change at Chattem, initiated a series of confidential conversations and meetings with his longtime accountant, Melvin, to discuss potential methods of ameliorating the effect of an acquisition of Chattem on his tax liability. The Chattem board member told Melvin sufficient information so that, given Melvin’s knowledge of the board member’s affairs, Melvin would have clearly known that the board member was discussing Chattem. Melvin and the Chattem board member also discussed the price impact of the tender offer on the board member’s options.
The Commission further alleges that Melvin misappropriated material nonpublic information regarding the impending tender offer for Chattem securities. Within days of his first meeting with the board member, Melvin disclosed material nonpublic information about the impending tender offer to Rooks. Rooks traded in Chattem securities based on the material nonpublic information disclosed by Melvin, and Rooks caused another individual to trade based on that information.
Rooks has agreed to settle the SEC claims against him by consenting to the entry of a final judgment providing permanent injunctive relief and by agreeing to pay disgorgement of $18,482.14, prejudgment interest of $1,432.68, and a penalty of $4,620.54. The terms of Rooks’ settlement reflect credit given to him for his cooperation and substantial assistance to the investigation. Rooks neither admitted nor denied the SEC allegations, and his settlement is subject to court approval.
The SEC also filed a civil injunctive action last Tuesday against Melvin, along with Michael S. Cain, a registered representative associated with a Commission-registered broker-dealer; Joel C. Jinks, a one-time candidate for local sheriff; and Peter C. Doffing. The Commission alleges that Melvin disclosed material nonpublic information about the pending tender offer for Chattem, Inc. securities to Cain and Jinks. The Commission also alleges that Cain tipped Jinks with this same information. The SEC further alleges that Cain, Jinks and Doffing traded in the securities of
Chattem based on that material non-public information.
The SEC complaint, filed in the U.S. District Court for the Northern District of Georgia, alleges that each defendant violated the securities laws, and seeks against each defendant permanent injunctions, disgorgement with prejudgment interest and civil monetary penalties.