SEC Sues Insurance Broker, Tax Manager for Insider Trading

Jack Humphrey, Regulatory journalist
March 05, 2012 /

The Securities and Exchange Commission has charged a California-based insurance broker and a Pennsylvania-based tax manager with insider trading on confidential information they obtained while providing their respective services to companies involved in an impending acquisition.

The Commission alleges that William F. Duncan, 60, of Redondo Beach, Calif., and John M. Williams, 38, of Media, Pa., separately traded illegally in the securities of Hi-Shear Technology Corporation, a Torrance, Calif.-based manufacturer of products for the aerospace and defense industries.

After obtaining nonpublic information about Hi-Shear’s proposed acquisition by Chemring Group PLC, Duncan and Williams each purchased Hi-Shear stock before the public announcement of the sale on Sept. 16, 2009.

According to the Commission’s complaint against Duncan filed in federal court in Los Angeles, Hi-Shear sought quotes in late August 2009 for a “tail policy” from its longstanding insurance agent ISU-Olson Duncan Agency. A tail policy provides ongoing insurance coverage for a company’s officers and directors for claims made after a company is sold.

Duncan is president of the insurance brokerage. As Hi-Shear’s point of contact, he knew that Hi-Shear expected him to keep sensitive business information confidential and that he had a duty to avoid self-dealing. However, Duncan traded on the basis of the confidential information concerning Hi-Shear’s need for a tail policy. Duncan realized illicit profits of approximately $85,525 on the purchase and sale of 10,000 shares of Hi-Shear stock.

According to the Commission’s separate complaint against Williams filed in federal court in Philadelphia, Williams obtained the confidential information about Chemring’s impending acquisition of Hi-Shear while working as a tax manager at Deloitte Tax LLP, which provided services to Chemring and its subsidiaries.

Williams assisted in the tax due diligence for the proposed transaction and was told that Hi-Shear was Chemring’s acquisition target. Williams then traded on the basis of the confidential information and concealed his trades from Deloitte, which required its employees to pre-clear and report their trades. Williams realized illicit profits of approximately $6,803.18 on the purchase and sale of 850 shares of Hi-Shear stock.

Duncan and Williams each consented to the entry of final judgments without admitting or denying the allegations against them. They agreed to pay disgorgement of their trading profits, prejudgment interest, and a penalty equal to the amount of their profits.

Duncan and Williams each agreed to settle the Commission’s insider trading charges by paying $175,649 and $14,226.41 respectively.

 

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