S.E.C. v. Roszak

• Decision Date: 10 July 2007
• Docket Number: No. 06 C 3166.,06 C 3166.
• Citation: 495 F.Supp.2d 875
• Parties: SECURITIES and EXCHANGE COMMISSION, Plaintiff, v. Matthew ROSZAK, et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

Page 875

495 F.Supp.2d 875

SECURITIES and EXCHANGE COMMISSION, Plaintiff, v. Matthew ROSZAK, et al., Defendants.

No. 06 C 3166.

United States District Court, N.D. Illinois, Eastern Division.

July 10, 2007.

Jason R. Berkowitz, Robert K. Levenson, U.S. Securities & Exchange Commission, Miami, FL, for Plaintiff.

Lisa L. Tharpe, Phillip M. Goldberg, Andrea Kathleen Zollett, Foley & Lardner, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

CASTILLO, District Judge.

The Securities and Exchange Commission ("SEC") brought this civil action alleging violations of Section 10(b) of the Securities Exchange Act of 1934 ("the Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5 against Defendants Matthew Roszak ("Roszak"), Darrin Edgecombe ("Edgecombe"), Douglas Jozwiak ("Jozwiak"), Trifon Beladakis ("Beladakis") and Mark Michel ("Michel"). (R. 1, Compl. ¶¶ 1-5.) Before the Court is Defendant Michel's motion for summary judgment. (R. 54, Def. Michel's Mot. for Summ. J.) For the following reasons, the motion is denied.

RELEVANT FACTS¹

I. Factual Background

Blue Rhino, Inc. ("Blue Rhino") is a North Carolina retail propane gas and tank distribution company. (R. 68, Pl.'s Resp. to Def.'s Facts ¶¶ 9-10.) During the period relevant to this suit, Blue Rhino's stock was traded on the Nasdaq National Market. (Id. ¶ 9.) On February 9, 2004 Blue Rhino announced its acquisition by Ferrellgas Partners, L.P. ("Ferrellgas"). (Id.) The events underlying the SEC's complaint occurred in the month preceding Blue Rhino's acquisition by Ferrellgas. (See R. 1, Compl. ¶¶ 1-5.)

Andrew Filipowski ("Filipowski"), a nonparty to this litigation, was a member of Blue Rhino's board of directors. (R. 68, Pl.'s Resp. to Def.'s Facts ¶ 10; R. 86, Def.'s Resp. to Pl.'s Add. Facts ¶ 2.) Aside from his involvement in Blue Rhino, Filipowski had numerous other business ventures. (R. 68, Pl.'s Resp. to Def.'s Facts ¶¶ 11-12.) Defendant Roszak has been employed by several of Filipowski's companies, although not Blue Rhino. (Id. ¶ 12.) Defendant Roszak owned a significant interest in another of Filipowski's companies, Silkroad Equities, and was its chief financial officer. (Id.) During his employment with Filipowski, Defendant Roszak was personally involved in 12 to 20 mergers and acquisitions. (R. 68, Pl.'s Resp. to Def.'s Facts ¶ 37.) Throughout 2004, Filipowski and Defendant Roszak were in almost daily contact, whether in person, by phone or by email. (R. 68, Pl.'s Resp. to Def.'s Facts ¶ 13.)

A. Filipowski Allegedly Tips Defendant Roszak

On January 8, 2004, Filipowski and Defendant Roszak sat next to each other during a plane trip from North Carolina to Chicago. (R. 86, Def.'s Resp. to Pl.'s Facts ¶¶ 5-6.) At this time, Filipowski knew about Blue. Rhino's proposed merger with Ferrellgas. (Id. ¶ 5.) The parties dispute whether during the flight Filipowski gave Defendant Roszak information about Blue Rhino's pending merger with Ferrellgas. (R. 68, Pl.'s Resp. to Def.'s Facts ¶¶ 14-16, 22.)

Approximately two hours after getting off the flight with Filipowski, Defendant Roszak called his broker and placed an order for roughly $95,000 of Blue Rhino stock. (R. 86, Def.'s Resp. to Pl.'s Facts ¶¶ 6-8.) This was almost four times larger than any stock purchase he had made in a single day during the last year. (R. 86, Def.'s Reply to Pl.'s Facts ¶ 8.) During the phone call Defendant Roszak's broker asked him, "[I]s there something here — do you know something you shouldn't"? (Id. ¶ 7.) According to his broker, Defendant Roszak responded, "[N]o, it's all on the up and up, it's my own research." (R. 56, Def.'s Facts, Ex. 9, Mahoney Invest. Test. at 26.)²

On January 28, 2004, Defendant Roszak emailed Filipowski about a matter related to one of Filipowski's other companies, and Filipowski responded that he was unable to deal with the matter right away because he was in "daily [Blue Rhino] meetings" and had "stuff that I need to concentrate on...." (R. 68, Pl.'s Resp. to Def.'s Facts ¶ 33; R. 56, Def.'s Facts, Ex. 6, Filipowski Invest. Test. at 132.) The parties dispute whether Defendant Roszak deduced from this email that the pending merger with Ferrellgas was imminent. (R. 68, Pl.'s Resp. to Def.'s Facts ¶ 38.)

B. Defendant Roszak Allegedly Tips Others

On January 29, the day after receiving the email from Filipowski, Defendant Roszak called four people, Defendant Jozwiak (his brother-in-law), Defendant Edgecombe (a long-time friend), Tom Roszak (his brother), and Brad Peters (another brother-in-law), all of whom subsequently purchased Blue Rhino stock. (R. 86, Def's Resp. to Pl.'s Facts ¶¶ 14-18.) The following morning, Defendant Jozwiak purchased $56,000 of Blue Rhino stock, the largest stock purchase he had made in the 11 years since opening his trading account. (R. 86, Def.'s Resp. to Pl.'s Add. Facts ¶ 22.) That same morning, Defendant Edgecombe bought $294,954 of Blue Rhino stock, his largest single-day purchase of stock in a year. (Id. ¶¶ 18, 25.) Within a few days of speaking with Defendant Roszak, Tom Roszak and Brad Peters (neither of whom are parties to this litigation) bought approximately 849,000 and $15,000 of Blue Rhino stock, respectively. (Id. ¶¶ 23-24.)

On February 4, 2004, a few days after making the above phone calls, Defendant Roszak visited his broker with a signed options form and inquired about buying Blue Rhino options. (R. 68, Pl.'s Resp. to Def.'s Facts ¶ 40; R. 56, Def.'s Facts, Ex. 9, Mahoney Invest. Test. at 33-39.) His broker dissuaded him from purchasing the options, telling him the idea was "a little ridiculous." (R. 56, Def.'s Facts, Ex. 9, Mahoney Invest. Test. at 37.)

C. Defendant Edgecombe Allegedly Tips Others

After speaking with Defendant Roszak, Defendant Edgecombe in turn called four people: Mark Kastner (a business partner), Scott Edgecombe (his brother), and Defendants Beladakis and Michel (two long-time friends), all of whom subsequently purchased Blue Rhino stock. (Id. ¶¶ 25-29.) Kastner and Scott Edgecombe (neither of whom are parties to the litigation) each purchased approximately $13,000 in Blue Rhino stock within a few days of speaking to Edgecombe. (Id. ¶¶ 31-32.) Defendant Beladakis purchased $138,047 in Blue Rhino stock on January 30, almost four times as much as his next largest single-day purchase in the previous year. (Id. ¶ 29.)

Defendants Edgecombe and Michel have been friends since the early 1990s. (R. 68, Pl.'s Resp. to Def.'s Facts ¶ 45.) They are in frequent contact and talk about stocks almost every time they speak; in the past, Defendant Edgecombe has given Defendant Michel stock recommendations. (Id. ¶¶ 46, 47.) On January 29, 2004, Defendant Edgecombe called Defendant Michel on the telephone around 8:42 p.m. (Id. ¶ 49.) The following morning, Defendant Michel, a registered representative at Wachovia Securities ("Wachovia"), bought Blue Rhino stock for his brother Brian and a few other customers. (Id. ¶¶ 6, 68, 72.) That same day, Defendant Michel sold 10,000 shares of his own stock in another company, Endocardial Solutions, which he had purchased three days earlier. (R. 86, Def.'s Resp. to Pl.'s Add. Facts ¶ 41.) On February 2 and February 3, Defendant Michel purchased a total of $89,460 in Blue Rhino stock for himself. (R. 68, Pl.'s Resp. to Def.'s Facts ¶ 73; R. 86, Def.'s Resp. to Pl.'s Add. Facts ¶ 41.) Also on February 3, Defendant Michel submitted paperwork to his superiors requesting that he be permitted to borrow money from his brother Brian; he received approval for the loan a few days later and used the entirety of the $70,000 loan to purchase additional Blue Rhino stock. (R. 68, Pl.'s Resp. to Def.'s Facts ¶¶ 87-90.) It was against Wachovia policy to borrow money from a relative to buy stock.³ (R. 86 Def.'s Resp. to Pl.'s Facts ¶¶ 42.) Over the course of six trading days, Defendant Michel purchased a total of $1.4 million worth of Blue Rhino for himself and approximately 40 of his customers. (Id. ¶ 47; R. 68, Pl.'s Resp. to Def.'s Facts ¶¶ 85, 101-08.)

On February 9, 2004, Blue Rhino publicly announced its acquisition by Ferrellgas. (R. 68, Pl.'s Resp. to Def.'s Facts ¶ 9.) That same day, the price of Blue Rhino stock rose approximately 20 percent to $16.74 per share. (R. 68-9, Pl.'s Facts, Ex. 6(A), Expert Report of Jeffry Davis ¶ 28.)

II. Procedural History

On June 8, 2006, the SEC filed this action against Defendants Roszak, Edgecombe, Jozwiak, Beladakis and Michel, alleging violations of Section 10(b) of the Exchange Act for trading on material, non-public information. (R. 1, Compl. ¶¶ 38-44.) Shortly after the complaint was filed, Defendants Roszak, Jozwiak, Beladakis and Edgecombe all waived service and consented to entry of judgment, without admitting or denying the allegations in the complaint. (R. 4-7.)

Final judgments awarding permanent injunctive relief to the SEC were thereafter entered against these Defendants. (R. 8-15.) Defendant Roszak was found liable for disgorgement of $23,230, representing profits gained by conduct alleged in the complaint, and was found jointly and severally liable for $93,004, representing profits gained by four tippees through conduct alleged in the complaint, plus prejudgment interest. (R. 9.) He was also ordered to pay a civil penalty of $116,234. (Id.) Defendant Jozwiak was found liable for $14,136, plus prejudgment interest, and was ordered to pay a civil penalty in this same amount. (R. 13.) Defendant Beladakis was found liable for $29,783 in profits, plus prejudgment interest, and was ordered to pay a civil penalty in this same amount. (R. 11.) Defendant Edgecombe was found liable for $65,017, representing profits gained by conduct alleged in the complaint, and was found jointly and severally liable for $70,794, representing profits gained by four tippees through conduct alleged in the complaint, plus prejudgment interest. (R. 15.) He was ordered to pay a civil penalty of $104,930. (Id.)

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