U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 20095 / April 27, 2007 SEC v. Blue Bottle Limited and Matthew C. Stokes, 07 Civ. 01-CV-1380 (CSH) (KNF) (S.D.N.Y.) Court Orders Permanent Injunction and Payment of Over $10 Million in Trading Scheme On April 24, 2007, the United States District Court for the Southern District of New York entered a default judgment against Defendants Blue Bottle Limited and Matthew Charles Stokes in an action filed by the Securities and Exchange Commission earlier this year. The Honorable Charles S. Haight, Jr.'s Order enjoins Stokes, a citizen of Guernsey, and Blue Bottle, a Hong Kong chartered company, from violations of the antifraud provisions of the federal securities laws, and orders them jointly and severally liable for $10,846,785 in disgorgement and penalties. Specifically, the Court ordered $2,707,177 in disgorgement of profits from the illegal trading, $18,047 in prejudgment interest, and an $8,121,561 million penalty equal to three times the profits from the illegal trading.
The Court found that the Defendants opened a U.S. brokerage account using false information and documents. During a six week period in January and February 2007, Defendants traded just before news releases of at least 12 different U.S. public companies and amassed profits totaling approximately $2.7 million. "Given the disparate companies in which the Defendants traded, the nature of the Defendant's trading, the number of times Defendants profited from trading shortly before news releases, and amount, of profits the trading generated," the Court concluded that "the Defendants employed devices, schemes, or artifices to defraud." The Court then found that the Defendants violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rule 10b-5 both by "their deceptive conduct in obtaining material, non-public information," as well as by trading while in possession of that information.
The Commission acknowledges the assistance of the Options Regulatory Surveillance Authority.
For further information, please see Litigation Release No. 20018 (February 26, 2007) (below) and Litigation Release No. 20047 (March 16, 2007).
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U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 20018 / February 26, 2007 SEC v. Blue Bottle Limited and Matthew C. Stokes, 07 Civ. 01-CV-1380 (CSH) (KNF) (S.D.N.Y.) (February 26, 2007) Court Orders Temporary Restraining Order and Asset Freeze in SEC Emergency Fraud Action Involving Trading in Advance of Press Releases of 12 U.S. Companies Foreign defendants garnered profits of over $2.7 million through illegal scheme In an emergency federal court action filed today, the Securities and Exchange Commission obtained a court order temporarily restraining Blue Bottle Limited, a Hong Kong company, and Matthew Charles Stokes, a citizen of Guernsey, from violating the antifraud provisions of the federal securities laws. The Honorable Charles S. Haight, Jr., United States District Judge, Southern District of New York, also ordered a freeze of Blue Bottle's and Stokes's assets, as well as an order requiring them to repatriate funds transferred to overseas accounts. In addition, the Court ordered the defendants to appear on March 7, 2007, to show cause why the Court should not enter a preliminary injunction extending the asset freeze and other ancillary relief entered in the Temporary Restraining Order pending a final determination of the case.
The Commission's complaint alleges that Blue Bottle and Stokes, immediately prior to the publication of news releases by 12 different U.S. public companies, repeatedly traded in the securities of those companies, including options and equities trading. The Commission alleges that the defendants fraudulently gained access to material nonpublic information through fraudulent devices, schemes, or artifices, which may include, but are not limited to, hacking into computer networks or otherwise improperly obtaining electronic access to systems that contain information about imminent news releases. The complaint alleges that, with the material nonpublic information in hand, defendants traded ahead of the public dissemination of that information, realizing profits of $2,707,177. The Commission further alleges that Blue Bottle and Stokes provided false information and used fake documents to open an account at the U.S. broker-dealer through which they executed the illegal trades.
The Commission alleges that the illegal trading, which began in early January 2007, was in the securities of the following 12 U.S. companies: AllianceBernstein Holding L.P., Allscripts Healthcare Solutions Inc., Achillion Pharmaceuticals Inc., BJ's Wholesale Club Inc., Brady Corporation, CACI International, Inc., Hornbeck Offshore Services, Inc., LeCroy Corporation, Millipore Corporation, Odyssey Healthcare Inc., Symantec Corporation, and RealNetworks, Inc. For instance, with respect to the defendants' trading in Symantec, the complaint alleges that on January 12, 2007 at approximately 1:03 p.m. EST, the defendants began buying 10,000 SYMC Jan07 20 put contracts, which represented 20 percent of the total trading in that security for the day. Those contracts were out-of-the money when purchased. Later that same day, at approximately 1:37 p.m. EST, the defendants began buying 500 SYMC Jan07 22.5 put contracts, which represented 41 percent of the total trading in that security for the day. All of the put contracts were to expire on January 20, 2007. Essentially, buying the put options was a bet by the defendants that the price of Symantec stock would decrease. The Commission further alleges that on the next trading day, January 16, 2007, at 7:48 a.m. EST, Symantec issued a downward revision of its third quarter 2007 earnings and revenue forecast. Shortly following Symantec's announcement, the defendants began selling the put contracts, amassing a profit of $1,030,471.
As a result of the illegal trading in the 12 companies, the Commission alleges that Blue Bottle and Stokes violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rule 10b-5. The complaint seeks permanent injunctions, disgorgement of illegal profits plus prejudgment interest, and civil money penalties.
The Commission acknowledges the assistance of the Options Regulatory Surveillance Authority.
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