U.S. Securities and Exchange Com'n v. Blackwell, No. 03-CV-63.
| Decision Date | 19 November 2003 |
| Docket Number | No. 03-CV-63. |
| Parties | UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Roger D. BLACKWELL, et al., Defendants. |
| Court | U.S. District Court — Southern District of Ohio |
Asheesh Goel, Gregory P. von Schaumburg, Peter B. Driscoll, U.S. Securities & Exchange Commission, Chicago, IL, Mark Thomas D'Alessandro, United States Attorney's Office, Columbus, OH, for Plaintiff.
Thomas O. Gorman, Daniel William Costello, Porter Wright Morris & Arthur, John Stephen Teetor, Maribeth Deavers, Isaac Brant Ledman & Teetor, Christopher Craig Woods, P. Brian See, Squire Sanders & Dempsey, Arnold L. Jack, pro se, Jack & Snyder, Columbus, OH, for Defendants.
This enforcement action filed by the United States Securities and Exchange Commission (the "SEC" or the "Commission") involves alleged insider trading in the stock of Worthington Foods, Inc. ("Worthington"). The SEC alleges that Defendant Roger D. Blackwell ("Blackwell"), a director of Worthington, provided illegal tips to close friends and family members prior to the October 1, 1999, announcement that the Kellogg Company ("Kellogg") had entered into an agreement to acquire Worthington. The SEC contends that these tips allowed the other named Defendants to profit in violation of the federal securities laws. Jurisdiction is proper under Sections 21 and 27 of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78u and 78aa.
This matter is currently before the Court on Motions to Dismiss filed by Defendants Roger Blackwell, both in his personal capacity and in his capacity as trustee of the Roger Blackwell & Associates Pension Plan Trust (the "Pension Plan Trust"); Dale Blackwell, Roger Blackwell's father; Christian Blackwell, Roger Blackwell's son; Arnold L. Jack, Roger Blackwell's close friend and business associate; and Black-Jack Enterprises ("Black-Jack"), Roger Blackwell and Arnold Jack's business partnership. This matter is also before the Court on a Motion for Judgment on the Pleadings filed by Defendants Kelley L. Hughes, Roger Blackwell's office manager at Blackwell & Associates, and her husband Kevin L. Stacy. All Defendants have adopted at least some portion of Roger Blackwell's Motion to Dismiss as their own. For the following reasons, the Court DENIES the Motions to Dismiss of all moving Defendants and DENIES Defendants Hughes and Stacy's Motion for Judgment on the Pleadings.
The following facts are taken from the SEC's Complaint.
Defendant Roger Blackwell is a nationally recognized expert in consumer behavior and marketing. He is a high-profile marketing professor at The Ohio State University and is a member of the boards of directors of several public and private companies. From 1992 to November 29, 1999, Blackwell was a member of the board of directors of Worthington (the "Board"), which, at the time, was a publicly traded corporation based in Worthington, Ohio, that produced meat alternative food products made from soy and wheat proteins. Worthington's securities were registered under Section 12(g) of the Exchange Act. Its common stock was traded on the Nasdaq National Market, and its options were traded on the Philadelphia Stock Exchange.1 Blackwell was also, at all relevant times, the president and sole owner of Blackwell & Associates, a consulting firm; the trustee of the Pension Plan Trust; and a general partner and 50% owner, along with Defendant Jack, of Defendant Black-Jack, an investment partnership.
On July 8, 1999, representatives from Kellogg approached Worthington's Chairman, President, and Chief Executive Officer, Dale Twomley, to discuss the possibility of a business combination. On July 16, 1999, top Kellogg officials met with Twomley and other Worthington officials to execute a confidentiality agreement. On July 20, 1999, during a regularly scheduled Board meeting, Twomley informed the Board of the ongoing discussions with Kellogg. At that meeting, the Board authorized management to engage an investment banker. Blackwell attended this and all other Board meetings in July, August, and September 1999, appearing either in person or by telephone.
On August 10, 1999, Twomley and Worthington officials discussed pricing the deal at .76 Kellogg share per Worthington share ($26.08 per Worthington share). In August and September 1999, Worthington's stock was trading in the $11 15/16 to $14 3/8 range. On August 11, 1999, during a special telephonic meeting, the Board authorized the negotiation of a definitive merger agreement. Soon thereafter, Worthington formally engaged an investment banker and began its due diligence process.
On August 26, 1999, during a special telephonic meeting, the Board authorized management to pursue an all cash transaction. On August 30, 1999, Kellogg delivered to Worthington an initial draft of the merger agreement. On September 8, 1999, the Board met with legal counsel to review the merger agreement. On September 23, 1999, Twomley and Kellogg officials agreed to a price of $24 per share for Worthington stock. The next day, on September 24, 1999, the Board held a special meeting during which the directors authorized management to complete the definitive agreement. Copies of the merger agreement were sent to the Worthington directors on September 27, 1999. On September 29, 1999, the Board met and approved the merger agreement. The parties executed the merger agreement by the end of the day on September 30, 1999. On the morning of October 1, 1999, the parties issued a press release announcing the merger agreement in which Kellogg would pay $24 for each share of Worthington stock. On that day, Worthington's stock price closed at $23 1/16, up $8.75, or 61.4%, from the previous day's closing.
The SEC alleges that Blackwell illegally provided material non-public information regarding Worthington's merger with Kellogg to family members and friends who profited by illegally trading on this information. On September 8, 1999, after the special Board meeting held on that day to discuss the proposed merger, Blackwell visited the home of his father, Defendant Dale Blackwell. During that visit, Dale Blackwell asked his son whether he should invest in Worthington and Bank One. At that time, Defendants Roger and Dale Blackwell discussed both Worthington and Bank One. During the course of the conversation, Blackwell allegedly disclosed material non-public information concerning Kellogg's acquisition of Worthington to his father. As a result of that conversation, Dale Blackwell purchased 1,000 shares of Worthington stock on September 13, 1999, and 1,000 shares of Worthington stock on September 20, 1999. After spending a total of $25,023.08 on the Worthington stock, Dale Blackwell sold it, on October 6, 1999, for $45,894.59. As a result of the September 8, 1999, conversation, Dale Blackwell also bought 100 shares of Bank One stock, spending $3,900.
In late August 1999, Defendant Christian Blackwell, Blackwell's adult son, had a telephone conversation with his father in which they discussed investing in Worthington and several other companies on whose boards Blackwell served as a director. Blackwell had a long-standing practice of giving investment advice and financial assistance to his son. In the August 1999 telephone conversation, Blackwell allegedly disclosed material non-public information to Christian Blackwell concerning Kellogg's acquisition of Worthington. As a result of that conversation, Christian Blackwell purchased 388 shares of Worthington stock for three separate accounts, spending $4,994.99.2 He had never before bought Worthington stock. On December 10, 1999, Christian Blackwell sold the Worthington stock, earning proceeds of $9,312.00.
Defendant Kelley Hughes has worked for Blackwell & Associates for ten years and is allegedly a close confidant of Blackwell. She typically makes investment decisions jointly with her husband, Defendant Kevin Stacy. In the six months prior to September 1999, Hughes and Stacy had not placed any trades in the stock market. While they had previously invested in Worthington stock, they had only made three small purchases of Worthington stock, the most recent in February 1999 for 250 shares. On August 31, 1999, Blackwell met with Hughes as part of Hughes's year-end performance review. During this and additional conversations in September 1999, Blackwell allegedly disclosed to Hughes material non-public information concerning Kellogg's proposed acquisition of Worthington. Shortly after the August 31, 1999, conversation and at various points in September, Hughes allegedly disclosed to Stacy material non-public information concerning Kellogg's proposed acquisition of Worthington.
On September 1, 1999, Hughes and Stacy purchased 180 shares of Worthington stock. They purchased an additional 10,106 shares on September 20, 21, 22, 29, and 30, 1999. They spent a total of $129,655.33 on the Worthington stock. When they sold these shares, on October 4 and 5, 1999, their proceeds totaled $234,609.80. Hughes and Stacy's investment in Worthington stock was their largest investment ever in a single stock. The amount of the investment equaled 150% of their combined annual income. The investment utilized substantially all of Hughes and Stacy's liquid assets, including a $30,000 payment from either Roger Blackwell or Blackwell & Associates that was apparently some sort of interest-free loan.3
Defendant Roger Blackwell is sole trustee of the Pension Plan Trust, of which both his wife Kristina and Defendant Hughes are direct beneficiaries. Blackwell, his wife, and Defendant Hughes each had authority to make trades on behalf of the Pension Plan Trust. To the extent the pension plan funded by the trust...
To continue reading
Request your trial
-
U.S. S.E.C. v. Sierra Brokerage Services Inc.
...a showing of scienter. SEC v. Levy, 706 F.Supp. 61, 69 (D.C.Cir.1989) (scienter not element of Section 13(d)); SEC v. Blackwell, 291 F.Supp.2d 673, 694 (S.D.Ohio 2003). 33. In fact, they controlled close to 20% of the total outstanding 20 million 34. Markow argues that he cannot be consider......
-
In re National Century Financial Enterprises, Inc., Case No. 2:03-md-1565.
...Cir. 1993)). Scienter may be averred generally and inferred from circumstantial evidence. See Fed.R.Civ.P. 9(b); S.E.C. v. Blackwell, 291 F.Supp.2d 673, 696 (S.D.Ohio 2003). Though the Founders argue that the complaint fails to allege fraud with particularity, the court finds otherwise. The......
-
In re National Century Financial Enterprises, Inc., 2:03-md-1565.
...Cir. 1993)). Scienter may be averred generally and inferred from circumstantial evidence. See Fed.R.Civ.P. 9(b); S.E.C. v. Blackwell, 291 F.Supp.2d 673, 696 (S.D.Ohio 2003). 3. Negligent MetLife, Lloyds, the New York Funds, and the Arizona Noteholders have also brought claims against Credit......
-
In re National Century Financial Enterprises, Inc.
...Cir. 1993)). Scienter may be averred generally and inferred from circumstantial evidence. See Fed.R.Civ.P. 9(b); S.E.C. v. Blackwell, 291 F.Supp.2d 673, 696 (S.D.Ohio 2003). The complaint also asserts a claim for negligent misrepresentation. The Ohio Supreme Court has defined negligent misr......