S.E.C. v. Falbo, 92 Civ. 6836 (PKL).
| Decision Date | 05 August 1998 |
| Docket Number | No. 92 Civ. 6836 (PKL).,92 Civ. 6836 (PKL). |
| Citation | 14 F.Supp.2d 508 |
| Parties | SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Robert FALBO, Theresa Billings Falbo, Lorre Meade, Anthony Capricuso, Michael Nardino, Mark Muenster, and Eric Muenster, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Securities and Exchange Commission, Division of Enforcement, Washington, D.C., Kenneth L. Miller, James A. Kidney, of counsel, for plaintiff.
Morvillo, Abramovitz, Grand, Iason & Silverberg, P.C., New York City, NY, Barry A. Bohrer, of counsel, for defendant Theresa Billings Falbo.
Lawrence J. Groskin, Tuxedo Park, NY, for defendant Lorre Meade.
Robert Falbo, Hobe Sound, FL, pro se.
Plaintiff Securities and Exchange Commission (the "SEC") brings this civil enforcement action seeking injunctive and other relief for alleged violations of the laws and regulations governing the trading of securities. Pursuant to Rule 56 of the Federal Rules of Civil Procedure, the SEC moves for summary judgment against defendants Robert Falbo ("Falbo") and Lorre Meade ("Meade"). For the reasons stated in this Opinion, the SEC's motion for summary judgment is granted in part and denied in part.
On October 4, 1988, Grand Metropolitan P.L.C. ("Grand Met"), a United Kingdom corporation, announced a tender offer for all the outstanding shares of common stock in The Pillsbury Company ("Pillsbury"), a Delaware corporation with its principal offices located in Minneapolis, Minnesota. Grand Met initially offered $60 per share of Pillsbury common stock. In the three months directly preceding Grand Met's bid, Pillsbury's stock had traded between $34 and $39 per share. Following the announcement of Grand Met's tender offer, the price of Pillsbury's stock immediately leapt from $39 1/8, its trading price on October 3, 1988, to over $57 per share. Grand Met ultimately paid $66 per share of Pillsbury, concluding the acquisition in January, 1989.
Theresa Billings Falbo ("Billings") married Falbo in May of 1988. The record presently before the Court indicates that they remain married. From December of 1986 through June of 1987, and from July of 1988 through January of 1989, Billings worked for Grand Met as an executive secretary for Howard Chandler. Chandler served as Grand Met's Senior Executive Vice President for personnel, legal, and external affairs. Billings and Chandler worked at Grand Met's U.S. headquarters in Montvale, New Jersey.1 Billings's responsibilities as Chandler's secretary included making his travel plans, preparing expense reports, coordinating meetings, screening calls, maintaining files, taking dictation, word processing, and copying documents. By mid-August of 1988, Chandler and Billings were members of an "inner circle" of Grand Met employees working on the Pillsbury tender offer.2
From the late 1970's through 1988, Falbo, an electrician, was the sole owner of Earth Electric Company. During 1988, Falbo served as the electrical contractor on the renovations of Grand Met's Montvale offices.3 He completed some work for Grand Met directly and at other times participated in the project as a subcontractor. Between July and October of 1988, Falbo worked in the Grand Met executive area. Specifically, in August of 1988, he was responsible for electrical work relating to the installation of a key card system limiting access to the third floor of Grand Met's building. The company intended the key card system to prevent those who were not Grand Met employees from accessing the offices of those at the company who were working on the Pillsbury offer. The following month, Falbo handled the electrical work relating to the installation of security doors that were erected to separate those stationed in the third floor executive area (where Billings worked) from other Grand Met employees. Due to his work, Falbo possessed a master key to the Grand Met building in Montvale. With this key, Falbo could enter the building and access the executive area at any time.
While working at Grand Met in August and September of 1988, Falbo visited his wife in the executive area on the third floor. He was aware that she worked for Howard Chandler, that Chandler was a senior executive at Grand Met, and that his wife and Chandler handled confidential matters.
From March of 1988 through January of 1991, Meade worked as a secretary for IHC. Her office at IHC was in the same building as were Grand Met's offices. During the course of their work in the building, Meade and Falbo met and became friends. Meade was aware that Falbo's wife worked for Howard Chandler and knew that Chandler was a Grand Met executive.4
Early in 1988, Grand Met began to consider expanding its packaged foods business in the United States. Grand Met soon focused on Pillsbury as a potential target for acquisition.5 During the spring of 1988, Grand Met retained Swander & Pace, a management consulting firm, to conduct a detailed analysis of Pillsbury. By April, Pillsbury was identified as the primary acquisition candidate in discussions among Grand Met's board of directors. By mid-July of 1988, Grand Met had retained the investment banking firms of Morgan Stanley and S.G. Warburg to assist in the development of a strategy for acquiring Pillsbury. As Grand Met anticipated making a hostile bid for Pillsbury, Grand Met also hired the public relations firm of Robinson, Lake, Lerer & Montgomery. In addition, Grand Met retained the law firm of Cravath, Swaine & Moore ("Cravath"). Cravath advised Grand Met on the legal requirements and strategies relating to the potential acquisition, coordinated the offering process, and agreed to oversee all litigation in the United States relating to a bid.
At a July 13, 1988 meeting with representatives of Cravath and Morgan Stanley, Martin and Walsh established that Grand Met wanted to commence the tender offer for Pillsbury at or about the beginning of September. Lawyers at Cravath began drafting the offer in early August, with the Grand Met board formally approving the acquisition on August 16, 1988. On or about this date, Grand Met and its advisors established a firm plan for the tender offer and its financing. By late August, however, the offer was delayed until September 21. On September 18, Grand Met again postponed announcing the bid, and soon thereafter set the final target date of October 4.6
Between mid-August and mid-September of 1988, Grand Met and its advisors considered various offering prices in the range of $55-65 per share of Pillsbury common stock. On September 15, Morgan Stanley recommended setting the offering price at $60 per share. Martin accepted this proposal and presented it to the Grand Met board, which approved on September 30, 1988. Grand Met announced the offer the following week.
Until the announcement of the bid, all those involved in its planning endeavored to keep the project strictly confidential. As an initial precaution, Grand Met used code names to refer to the acquirer and target. Furthermore, Grand Met installed paper shredders in executive offices to help prevent documents relating to the tender offer from circulating outside the inner circle of people working on the project. In addition, the company limited access to the offices of the few people at Grand Met who were involved with the transaction. As mentioned previously, this was accomplished by erecting security walls around certain offices and by setting up a system requiring use of an electronic key card in order to gain entry to the third floor, where executive offices were located. Most importantly, Grand Met executives severely restricted the number of people at Grand Met who were informed of the company's plans to bid for Pillsbury. The few people who were aware of the potential tender offer were instructed that they were not allowed to discuss the acquisition with anyone outside the inner circle, including members of their families.
In early August, Chandler informed Billings of the project and explained that, as his secretary, she would have access to highly sensitive and confidential information. Having been instructed by Chandler not to discuss the acquisition with anyone, Billings then dealt with a wide range of documents that Chandler needed in connection with the offer. These included documents describing in detail the steps Grand Met would take in commencing the offer, prepared answers to questions that investment analysts were likely to pose about the bid, and statements written in advance for release to the government, investors, and the media. In short, as of early August of 1988, Billings knew of the existence of the planned offer, the identities of the acquirer and target, and the projected timing of the transaction. She also was informed when the offer was delayed and when new dates to go forward were set. In addition, as a member of the inner circle, Billings was privy to information concerning the price per share that Grand Met planned to offer. She was instructed that this information was strictly confidential.
Grand Met and its advisors were not completely successful in their attempt to keep secret the planned offer for Pillsbury. There were a handful of security breaches within Grand Met. First, on June 10, 1988, a copy of the Swander & Pace report on Pillsbury was left out on a copier located on the first floor of the Montvale office building shared by Grand Met and IHC. An IHC employee discovered the copy and returned it to Walsh. Then, ten days later, an accountant in Grand Met's tax department was overheard in the IHC cafeteria commenting that Grand Met planned to sell IHC and use...
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