SEC v. Tome
| Citation | 638 F. Supp. 596 |
| Decision Date | 15 July 1986 |
| Docket Number | No. 81 Civ. 1836(MP).,81 Civ. 1836(MP). |
| Parties | SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Giuseppe B. TOME, Paolo Mario Leati, Lombardfin S.p.A., Trasatlantic Financial Co., S.A., Nayarit Investments, S.A., Finvest Underwriters and Dealers Corp., Certain Purchasers of the Common Stock and Call Options for the Common Stock of St. Joe Minerals Corp., and Banca Della Svizzera Italiana, Defendants. |
| Court | U.S. District Court — Southern District of New York |
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Ira Lee Sorkin, Regional Administrator, S.E.C. by Anne C. Flannery, Robert B. Blackburn, Joseph G. Mari, Philip M. Giordano, Jennifer M. Russell, for plaintiff.
John F.X. Peloso, Daniel B. McIntyre, Sage Gray Todd & Sims, New York City, for defendant Giuseppe B. Tome.
Bruno Schachner, New York City, for defendants Transatlantic Financial Co., S.A., Nayarit Investments, S.A., Finvest Underwriters and Dealers Corp.
Chester J. Straub, David Trachtenberg, Willkie Farr & Gallagher, New York City, for defendant Banca Della Svizzera Italiana.
FINDINGS AND OPINION
THE ACTION
This is a civil insider trading liability action, brought by the Securities and Exchange Commission ("SEC"), authorized by Section 21(d) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78u(d), seeking an injunction and other ancillary relief, including disgorgement of ill-gotten gains, against defendants based on defendants' violations of the antifraud provisions of the securities laws and regulations. Subject-matter jurisdiction is posited on Sections 21(e) and 27 of the Exchange Act, 15 U.S.C. §§ 78u(e) and 78aa.
This action arises from the defendants' purchases of call options on the common stock of St. Joe Minerals Corporation ("St. Joe"), as well as of the stock itself, on March 10, 1981, the day immediately prior to the announcement by Joseph E. Seagram & Company of a hostile tender offer for all of the outstanding common stock of St. Joe. The issues were presented to the Court at a Bench trial.
The case reveals a crass abuse and betrayal of a personal and professional relationship of trust and confidence for personal gain. The principal defendant, Tome, exploited his confidential relationship with Seagram and with its Chairman of the Board and Chief Executive Officer, Edgar Bronfman, to obtain and misuse nonpublic information of Seagram's preparations to bid for control of St. Joe at $45 per share of common stock. Acting a day ahead of the announcement of that bid, on March 10, 1981, Tome positioned himself and his tippees to garner millions of dollars in unlawful gains by purchasing vast quantities of call options on St. Joe stock, and the stock itself, which was trading at about $30 per share, from unsuspecting sellers while Seagram was putting the finishing touches on the as-yet unannounced bid. Within days after the March 11th announcement of the hostile tender offer, which sent the St. Joe stock up to over $45 per share and skyrocketed the options accordingly, Tome and his tippees cashed in on their St. Joe call options and common stock. Tome fraudulently concealed his misappropriation of this confidential corporate information and his breach of the confidential relationship from Bronfman and from Seagram, falsely denying that he had made any St. Joe purchases and falsely denying any participation in the market when confronted and questioned specifically by Bronfman. As his identity in the illegal conduct came to light through a prompt SEC investigation, Tome fled this country and has remained abroad since. His conduct, and that of his cohorts, was meticulously pieced together by the SEC, resulting in this suit.
Those involved in the misconduct complained of form an intricate international web which needs to be detailed in order to understand its ramifications.
Giuseppe B. Tome ("Tome") is an Italian national who resides in Switzerland.1 He first became involved in the securities industry in 1959 as a Registered Representative in the Milan, Italy office of Bache & Co. ("Bache"). Through the years, Tome was promoted within the Bache organization, eventually becoming Chairman of Bache & Co. (Overseas) S.A., located in Geneva, Switzerland. Tome left Bache in 1973 for a position as Vice President of E.F. Hutton & Company, Inc. ("Hutton"). At Hutton, Tome was involved with their international division, eventually managing several hundred registered representatives located in twenty-two offices worldwide. When he resigned from Hutton on February 3, 1979, Tome was President of E.F. Hutton International, S.A., and was on the Board of Directors of Hutton.2
Sometime after leaving Hutton in 1979, Tome formed Compagnie Pour le Financement et l'Investissement, S.A. ("Finvest Geneva"), a securities firm headquartered in Geneva, Switzerland, of which he is the President and Chief Executive Officer. Finvest Geneva is controlled by, and is part of, a larger holding company, Infinvest Holdings, N.V., a Netherland Antilles corporation. See infra note 5.
In order to execute securities trades on the United States exchanges, Tome was also a registered representative from January 1980 until June 30, 1981, with Baird-Patrick & Co., Inc. ("Baird-Patrick"), a United States broker-dealer.3 Tome forwarded, and sometimes himself initiated, orders to buy or sell securities traded on U.S. exchanges, primarily the New York Stock Exchange, for the accounts of his clients, or for companies affiliated with Finvest Geneva, to Baird-Patrick for execution.
Tome regularly visited the United States for periods of time for business and social reasons; in early April 1981, however, he left the United States abruptly,4 missing a scheduled business meeting on April 9, 1981. Tome was indicted in New York on August 7, 1984, charged with criminal violation of the securities laws. He has not been in the United States since 1981 and did not return to face the criminal charges. Although represented by counsel in this case, he refused to answer any interrogatories related to the transactions involved herein on the ground of the Fifth Amendment privilege against self-incrimination.
Although not technically a defendant in this action, Finvest Geneva is discussed here next, both for purposes of clarity, and because of Tome's proprietary interest in and his use of Finvest Geneva in the matters involved herein.
Finvest Geneva belongs to a group of related enterprises (the "Finvest Group")5 that, through Tome's design, were represented to potential clients as engaging in securities and commodities brokeraging, in trading and underwriting, Eurobond transactions, currency management, portfolio management, as well as in investment banking.
Finvest Geneva itself was founded by Tome in 1979; Tome is its majority shareholder and two banks, Banque Privee and Compagnie de Banque et D'Investissement ("CBI"), are minority shareholders. Finvest Geneva's clients comprise Swiss banks, persons with accounts in Swiss banks, and depositors of Swiss banks. Finvest Geneva managed portfolios for approximately 25-30 clients. Finvest Geneva was run from day to day by Tome, and when he was not there, by either of two other employees, Mr. Del Pozzo or Mr. Bulletti.6
Finvest Geneva had discretionary authority over at least some of its clients' accounts. The only persons exercising discretion over clients' accounts, however, were Tome and, to a lesser extent, Del Pozzo and Bulletti.7 Thus, without the client's advance knowledge, Tome would often buy and sell stock and/or options for a particular clients' account.
Lombardfin S.p.A.,8 a holding company for various subsidiaries and affiliates, engaged primarily in securities and currency brokeraging, was formed in 1974 by Paolo Mario Leati ("Leati") and Dionisio G. Csopey ("Csopey"). Lombardfin S.p.A. and Finvest Geneva had a close working relationship because of Leati's relationship with Tome. In fact, Lombardfin S.p.A.'s two principal foreign affiliates were renting their only office space from Finvest Geneva.9 Conversely, Tome often visited the Milan office of Lombardfin S.p.A.'s domestic subsidiary and used its facilities (e.g., telephone, telex machine, quotation machine) to conduct his business. In addition, Lombardfin Securities Underwriters, a Lombardfin S.p.A. 100% owned affiliate, executed trades in the Eurobond market on Finvest Geneva's behalf because Finvest Geneva did not have the capacity to clear trades. Finvest Geneva had a securities trading account with Lombardfin Securities Underwriters, Ltd., which was opened on or about September 28, 1979.
Leati is an Italian national residing in Italy. In 1974, he and Csopey left their employment at Merrill Lynch, Pierce, Fenner & Smith, and formed Lombardfin S.p.A., as a joint stock company. In 1980-81, Leati was the majority shareholder (60-75%) in Lombardfin S.p.A. Csopey (12.5%) and Fiduciaria di Investimenti, a company, were the minority shareholders. Csopey was not named as a defendant in this action.
Leati was the decision-maker for Lombardfin S.p.A. and its subsidiaries. He had discretion over accounts of many Lombardfin S.p.A. clients and thus could, and often did, trade shares and/or options for a client's account without that client's advance knowledge or specific approval.
Banca Della Svizzera Italiana ("BSI") is a Swiss banking institution with principal offices in Lugano, Switzerland. It maintains securities trading accounts for customers. It acted for Tome's interests and the accounts of the so-called Panamanian defendants, i.e., NICO, TFCO, and Finvest Panama, discussed next.
To acquire the St. Joe securities he purchased directly on March 10, 1981, Tome used the brokerage trading accounts maintained at BSI for three Panamanian...
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