SEC files insider trading suit against Ontario men
2009-06-11 14:14 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
by Mike Caswell
The U.S. Securities and Exchange Commission has filed an insider trading lawsuit against an Ontario scrap metal worker and two of his friends, after they allegedly received non-public information about pending takeovers from an administrative assistant at Merrill Lynch Canada Inc. The complaint, filed June 10, 2009, in the Southern District of New York, alleges that Michael Goodman of Thornill, Ont., learned about takeovers from his wife in 2005, when she worked in Merrill Lynch's Toronto office. The SEC says he then passed the information on to two friends, who bought shares based on his tips.
The complaint identifies Mr. Goodman, 36, as an employee of a scrap metal company. His co-defendants are Martin Gollan, 63, a scrap metal dealer from North York, Ont., and Phillip Macdonald, 48, a lawyer from North York. The SEC says that Mr. Gollan and Mr. Macdonald made a combined $1,023,054 in trading profits based on Mr. Goodman's tips. (All figures are in U.S. dollars.)
According to the complaint, Mr. Goodman's wife worked at Merrill Lynch between January and June, 2005, as an assistant to managing directors who advised clients on contemplated mergers, acquisitions and tender offers. As part of her job, she had access to the identities of companies that could be subject to takeovers, the SEC says. The complaint states that she sometimes mentioned those companies to her husband during phone conversations. "Goodman's wife expected that her husband would keep this information confidential and believed that her husband understood that the conversations concerning these companies were confidential," the complaint reads.
The SEC says Mr. Goodman used this information to earn favour with Mr. Gollan. He sold scrap metal to Mr. Gollan, and spoke with him regularly about business and stocks, the complaint states. He also sought to earn favour with Mr. Macdonald, a friend he met in a bar in 2002 with whom he also had some business dealings, the SEC claims.
"Between January and June 2005 ... Goodman tipped Macdonald and Gollan about the identities of target companies involved in contemplated, but as yet unannounced, business combinations in which Merrill Canada or Merrill was involved," the complaint reads. It lists the companies as Creo Inc., Masonite International Corp., Eon Labs, Inc., Performance Food Group Company, Great Lakes Chemical Corp., Shopko Stores Inc., Electronics Boutiques Holdings Corp. and Commercial Federal Corp.
The SEC says both Mr. Macdonald and Mr. Gollan knew or should have known that the information they were trading on was non-public. According to the complaint, Mr. Macdonald was aware that the company names were coming Mr. Goodman's wife, who worked at Merrill Lynch. It also states that Mr. Gollan should have known, after the third or fourth time that he received a tip about a merger ahead of the announcement, that Mr. Goodman had obtained the information in breach of confidence.
The complaint describes several phone calls between Merrill Lynch's office, Mr. Goodman and his friends. In one example, the SEC claims that a director at Merrill Lynch sent an e-mail to Mr. Goodman's wife concerning a fairness opinion for "Project 29," a code name used for the proposed acquisition of Burnaby-based Creo by Eastman Kodak Company. That afternoon, Mr. Goodman's wife called him, and two minutes later, he called Mr. Gollan, the SEC says. Three minutes after that, Mr. Gollan allegedly placed an order for 3,500 shares of Creo through an account at CIBC World Markets. Two days later, on Jan. 31, 2005, Eastman Kodak announced that it would acquire Creo, and the price of the stock went from $17.89 (Canadian) to $20.07 (Canadian). The pattern was similar for the other tips, the complaint states.
The SEC claims that Mr. Macdonald's ill-gotten gains from the transaction were about $900,000, while Mr. Gollan made over $90,000. The complaint does not allege that Mr. Goodman himself made any money, or bought any of the stocks that he tipped his friends to buy.
The SEC is seeking disgorgement of ill-gotten gains, appropriate civil penalties and orders preventing future violations of the U.S. Securities Act.
Mr. Goodman, without admitting any wrongdoing, has settled his part of the case. He has agreed to an injunction barring future violations of the U.S. Securities Act. He has also agreed that he is liable for the ill-gotten gains by Mr. Macdonald and Mr. Gollan plus $251,301 in interest, but he will not have to pay those amounts based on his sworn statement of financial condition. The other two defendants have not responded to the allegations.
The SEC acknowledged the assistance of the Ontario Securities Commission with the case.
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