Plastics Executive to Pay $49.5 Million in SEC Case
The Securities and Exchange Commission has announced the successful resolution of its trial against a plastics industry executive charged with lying in SEC filings regarding his ownership of Musicland Stores Corporation stock.
The SEC’s case was investigated by Gerald Gross and litigated by David Stoelting, Tracy Sivitz, Katherine Brownstein, John Murray, Elizabeth Reilly, and Sandra Yanez of the New York Regional Office. The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of New Jersey and the New York Stock Exchange in this matter.
Alfred S. Teo, Sr. and a trust he controlled have been ordered by a federal judge to pay $49.5 million in a final judgment against them.
Under SEC rules, when a person or group of people acquires beneficial ownership of more than 5 percent of a voting class of a company’s publicly traded stock, they are required to file a Schedule 13D with the SEC. Teo, who is chairman of several private companies that are some of the largest producers of plastic bags in North America, was charged by the SEC in 2004 with filing false and misleading 13D forms and failing to make other required filings from 1998 to 2001. Teo and the trust thereby materially misrepresented their ownership of Musicland stock.
Following a 10-day trial in May in federal court in Newark, N.J., a jury returned a verdict finding Teo liable for securities fraud and disclosure violations on all counts against him. The jury also found the MAAA Trust controlled by Teo liable for disclosure violations. U.S. District Court Judge Susan D. Wigenton issued the final judgment in the case yesterday.
“Teo lied in his public filings for his personal gain and fraudulently circumvented core disclosure requirements designed to protect investors in public companies,” said George S. Canellos, Director of the SEC’s New York Regional Office.
“The court’s decision sends a strong message that our regulatory framework depends on truthful disclosure, and intentional violations will be appropriately sanctioned.”
The evidence at trial showed that Teo, who lives in Kinnelon, N.J., and Fisher Island, Fla., lied in SEC filings about the amount of shares he controlled in order to avoid triggering Musicland’s shareholders rights plan or “poison pill.”
Teo understood that triggering the poison pill would have significantly diluted his stock and caused massive losses to him. Teo deceptively purchased millions of Musicland shares well above the poison pill threshold, which he eventually sold to receive illicit profits.
Specifically, the court ordered Teo and the trust to pay $17,422,054.13 in disgorgement plus $14,649,034.89 in prejudgment interest, and penalties of $17,422,054.13. In addition to that $49,493,143.15 final judgment, Teo previously paid $996,782.68 in disgorgement and prejudgment interest for insider trading violations pursuant to a court order in this case on March 15, 2010. Teo also paid a $1 million fine and was sentenced to a 30-month prison term in a parallel criminal action for his insider trading crimes.