USSEC v. Suman
| Decision Date | 11 February 2010 |
| Docket Number | No. 07 Civ. 6625(WHP).,07 Civ. 6625(WHP). |
| Citation | 684 F. Supp.2d 378 |
| Parties | UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Shane Bashir SUMAN and Monie Rahman, Defendants pro se. |
| Court | U.S. District Court — Southern District of New York |
Dean Michael Conway, Esq., Securities and Exchange Commission, Washington, DC, for Plaintiff.
Shane Suman and Monie Rahman, Toronto, ON, Canada, Defendants Pro Se.
Plaintiff United States Securities and Exchange Commission (the "SEC") brings this enforcement action against Defendants pro se Shane Bashir Suman ("Suman") and Monie Rahman ("Rahman" and collectively "Defendants") for insider trading in violation of Sections 10(b) and 14(e), and Rules 10b-5 and 14e-3, of the Securities Exchange Act of 1934 (the "Exchange Act"). The SEC moves for summary judgment and seeks a permanent injunction barring Defendants from violating the securities laws, disgorgement and prejudgment interest, the imposition of joint and several liability, and a civil penalty as permitted by Section 21A of the Insider Trading and Securities Fraud Enforcement Act, 15 U.S.C. § 78u-1. For the following reasons, the SEC's motion for summary judgment is granted.
Suman and Rahman are husband and wife. During the relevant period, they maintained separate residences in Ontario, Canada and North Logan, Utah.
Beginning in 2004, Suman was an information technology ("IT") contractor for Ontario-based MDS Sciex, a scientific equipment manufacturer and division of MDS, Inc. (collectively "MDS"). (Pl. 56.1 Stmt. ¶¶ 11-12.) In December 2006, Suman became a full-time employee of MDS. (Pl. 56.1 Stmt. ¶¶ 11-13, 17.) His duties included servicing the IT needs of MDS executives, maintaining Blackberry communication devices, and recovering "lost" electronic documents. As "administrator" of the MDS email system, Suman could sort emails using a filter he controlled. (Pl. 56.1 Stmt. ¶¶ 15, 32-34; Young Dep. at 34.) Thus, Suman could maneuver through the email system and cover his tracks. (Pl. 56.1 Stmt. ¶ 34.)
Like every other MDS employee, Suman signed an "MDS Personal Pledge (Employee)" in which he agreed to maintain "the Company's reputation of integrity" and to be bound by the MDS Global Business Practice Standards. Those standards specify that information about "planned business acquisitions" is confidential and not to be shared outside MDS. (Pl. 56.1 Stmt. ¶¶ 25-26; SEC Index Ex. 24: MDS Global Business Practice Standards dated Sept. 2005 ("MDS Standards") at 14.) The standards warn employees not to trade MDS stock if they are aware of "material non-public information," including "news of an acquisition or divestiture of a significant business division or subsidiary." (Pl. 56.1 Stmt. ¶ 26; MDS Standards at 30.) The trading restriction also applied to "shares of companies negotiating, competing, doing business or seeking to do business with MDS." (MDS Standards at 30.)
In late 2006, MDS sought to acquire Molecular Devices Corporation ("Molecular Devices"), a company trading on the NASDAQ National Market system, in New York, under the symbol "MDCC." (Pl. 56.1 Stmt. ¶¶ 19, 54, 59.) The contemplated acquisition was highly confidential and known only by the codename "Project Monument." (Pl. 56.1 Stmt. ¶¶ 20, 23, 28.) Despite the embargo on references to Molecular Devices, MDS's due diligence team (the "Due Diligence Team") exchanged emails with the terms "Molecular Devices" and "Project Monument" in the same message. (Pl. 56.1 Stmt. ¶ 29; Young Dep. at 77-80.)
In December 2006, Paul Young ("Young"), the head of MDS's IT department and a member of the Due Diligence Team, discussed with Suman whether MDS's email system could accommodate an "approximate doubling in size." (Pl. 56.1 Stmt. ¶ 30; Young Dep. at 24-25.) Such conversations were routine in connection with potential acquisitions. (Young Dep. at 25-26.)
On January 19, 2007, Dawn Penner ("Penner"), another Due Diligence Team member, sought Suman's help for her malfunctioning Blackberry. (Pl. 56.1 Stmt. ¶¶ 39-40.) Suman obtained Penner's password, gained access to all her emails— including those received from a secure online site known as an "e-data room"—and worked alone on her Blackberry for several hours. (Pl. 56.1 Stmt. ¶¶ 40-41.) Some of Penner's secure emails identified Project Monument as the acquisition of Molecular Devices. (Pl. 56.1 Stmt. ¶ 41.)
On the morning of January 23, MDS communications consultant Sylvia Halligan ("Halligan") experienced computer problems and summoned Suman to her office. Halligan had been drafting a statement for MDS President Andy Boorn announcing MDS's acquisition of Molecular Devices when she "lost" the document. (Pl. 56.1 Stmt. ¶¶ 42-44, 47-48.) Halligan told Suman the lost document was very important and that it was titled "Andy Monument Message." (Pl. 56.1 Stmt. ¶ 51; Halligan Dep. at 28.) Suman attempted to recover it. (Pl. 56.1 Stmt. ¶ 52.)
Later that day, Suman conducted several internet searches:
That evening, Suman made a one-hundred minute phone call to his wife in Utah.
At 9:34 a.m. Eastern Time the next morning, Suman and Rahman used Rahman's brokerage account at E*Trade Canada (the "Rahman E*Trade Account") to purchase common shares and options of Molecular Devices on securities exchanges in the United States. Neither Suman nor Rahman had ever traded in Molecular Devices securities prior to this time. (Pl. 56.1 Stmt. ¶¶ 58, 63; SEC Index Ex. 25; E*Trade Monthly Account Statement of Monie Rahman ("E*Trade Statements"), at Bates Nos. MOL04599-MOL04724.) Between Wednesday January 24 and Friday January 26, 2007, Suman and Rahman acquired 900 call option contracts1 for the purchase of Molecular Devices stock on the Chicago Board Options Exchange. (Pl. 56.1 Stmt. ¶ 60; E*Trade Statements at Bates Nos. MOL04716-MOL04722.) Each option entitled Suman and Rahman to buy 100 equity shares in Molecular Devices at $25 per share in the February, March, and April series.
By the end of the day on Friday January 26, Suman and Rahman had acquired a majority of all outstanding Molecular Devices options for $103,516 and 12,000 equity shares on the NASDAQ Exchange for $287,759.54. (Pl. 56.1 Stmt. ¶¶ 64-66, 69; E*Trade Statements at Bates No. MOL04720.)
On Monday January 29, MDS announced its friendly tender offer for Molecular Devices. (Pl. 56.1 Stmt. ¶ 75.) According to the Form 8-K, MDS offered $35 per Molecular Device share. (Molecular Devices Corp. Form 8-K dated Jan. 29, 2007, available at http://www.sec.gov/ Archives/ edgar/data/1003113/0000950 XXXXXXXXXXX/f26807e8vk.htm.) On January 29, after the tender offer announcement, Molecular Devices' share price soared forty-five percent from $23.88 to $35.07 per share. (Pl. 56.1 Stmt. ¶ 77.) By the end of the trading day, the Rahman E*Trade Account had an unrealized gain of $906,300 on its 900 call options and a potential profit of $133,140 on Molecular Devices shares. (Pl. 56.1 Stmt. ¶¶ 78-79.) That day, Suman and Rahman also began selling their Molecular Devices shares and exercising call options. (Pl. 56.1 Stmt. ¶¶ 85-86; E*Trade Statements at Bates Nos. MOL04716-MOL04723). Their trading attracted the attention of regulators.
On February 1, the Ontario Securities Commission (the "OSC") contacted Suman regarding his trading in Molecular Devices stock. (Pl. 56.1 Stmt. ¶ 87.) He met with OSC investigators the following day and offered several explanations for his trading activity:
The developments that I was aware of were, first of all, the company got upgraded by Matrix Research. That's an analyst firm. And then it won a patent, a new patent for a biotechnology company. When they win a new patent, that always means the stock price goes up significantly. That was the other development. And they released a new product that also looked very positive on that company.
(SEC Index Ex. 29: Ontario Securities Commission Voluntary Interview of Shane Suman dated Feb. 2, 2007 ("OSC Interview") at 000018.) OSC investigators asked to examine his computer. Before turning it over, Suman installed an application known as "Window Washer" and deleted data from his hard drive. (Pl. 56.1 Stmt. ¶¶ 88-89.)
January 2007 was a phenomenal month for Suman and Rahman—the Rahman E*Trade Account jumped in value from $199,476.04 to $1,359,352.89. (E*Trade Statements at Bates Nos. MOL04709, MOL04716.) By...
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