Insider trading mystery: The butler did it, SEC says
NEW YORK: Regulators say they have solved an insider trading mystery: It was the butler in the poolside office with the fax machine.
Graham Lefford was accused by the Securities and Exchange Commission on Tuesday of illegally trading on confidential information that he gleaned in 2004 from his boss's $100 million purchase of a controlling stake of the rights to Elvis Presley's image and likeness.
Lefford, 44, of Waxahachie, Texas, worked for Robert Sillerman, the media entrepreneur, at Sillerman's home in the Hamptons, near New York City. The commission contends that Lefford made $48,525 from a $600 investment - a profit of 8,088 percent - in shares of the company that Sillerman was acquiring.
Lefford is also accused of violating a confidentiality agreement he signed in 2003, promising not to disclose any information he learned as an employee or to use it for his own profit.
The commission's lawsuit, filed in a U.S. district court in New York, seeks the return of Lefford's profit, and unspecified civil penalties.
"This is a reminder that people who get confidential information through their employment can't trade on that information," said David Rosenfeld, associate regional director for the commission's Northeast regional office. "They can't slip under the radar."
Sillerman, who also owns the rights to the television show "American Idol" and 80 percent of the rights to the image of the boxing legend Muhammad Ali through his company, CKX, is not named as a defendant in the case. In a statement, CKX said it "was aware of and cooperated fully with the SEC's investigation."
In a statement provided by his lawyer, Lefford denied the commission's charges and said that he had fully and voluntarily cooperated with the investigation into his stock trades. He said he was considering his legal options.
In April 2004, according to the commission, Sillerman began negotiating a $3.43 million buyout of Sports Entertainment Enterprises, a former amusement park operator turned dormant shell company. Simultaneously, he entered talks with representatives of Elvis Presley Enterprises to buy a controlling stake in the rights to the singer's name and likeness, but not his music.
According to the complaint, negotiations on the complex deal were conducted in extreme secrecy. On Aug. 11 and Aug. 12, 2004, Sillerman's office in New York faxed documents on the buyout to the poolside office of his home in Southampton, including a draft news release and, later, a written consent form.
"As the house manager," the complaint says, Lefford "managed the day- to-day affairs" of the house and performed other services "traditionally done by a butler." As such, he handled confidential business documents for Sillerman.
On Aug. 12 at 10:20 a.m., Lefford faxed the signature page of the consent agreement to Sillerman's office. Twelve minutes later, according to the complaint, he bought 5,000 shares of Sports Entertainment stock through a brokerage firm account he held with his wife. He paid 12 cents a share. When the deal was announced on Dec. 16, 2004, Sports Entertainment's stock price rose to $6.41 a share. Lefford sold his holdings a few days later at $9.25 to $10.50 a share.
In his statement, Lefford said he disagreed with the commission's interpretation of the facts surrounding his trading in the company.
Questions on enforcement
The chairman of the Senate Judiciary Committee has questioned officials with the Justice Department and the Securities and Exchange Commission on their enforcement efforts against illegal insider trading, The Associated Press reported from Washington.
The chairman, Arlen Specter, Republican of Pennsylvania, urged the officials at a hearing Tuesday to take "a closer look at the effectiveness of your work."
An analysis of the biggest U.S. corporate mergers over the past year, conducted for The New York Times by a Canadian research firm and reported last month, indicated that the stocks of 41 percent of the companies getting buyout bids showed unusual and suspect trading in the days and weeks before the deals were announced.
In general, illegal insider trading "is on the upswing," Robert Marchman, an official of the New York Stock Exchange's regulatory division, testified.
"I think I'd like to see more prosecutions," said James Cox, a professor at Duke University who specializes in securities law, when asked his view by Specter. (Sale of EPE, Source: International Herald Tribune/Sanja Meegin, Sep 28, 2006)