The Securities and Exchange Commission yesterday filed an emergency civil action in the United States District Court for the Southern District of New York against Cristian De Colli, a machinery engineer residing in Rome, Italy, alleging that he engaged in insider trading from which he reaped more than $2.1 million in illicit profits from highly suspicious trading in his US brokerage account in the securities of DRS Technologies, Inc., prior to the public disclosure of advanced merger negotiations.
The Commission also filed an application for a temporary restraining order in order to freeze De Colli’s assets in the United States. The Honorable Paul A. Crotty, United States District Judge in the Southern District of New York, issued a temporary restraining order freezing De Colli’s assets in the U.S., including his brokerage account, containing more than $2.1 million in ill-gotten gain from his insider trading. The order also grants expedited discovery, an order permitting alternative means of service, and an order preventing the alteration or destruction of documents.
The Commission’s complaint alleges that while in possession of material, nonpublic information regarding merger talks between DRS and Finmeccanica S.p.A, Cristian De Colli purchased shares and call options of DRS common stock. The Complaint further alleges that after public disclosure of the merger talks, De Colli liquidated all of his call options for an illicit profit of five times the amount of his original investment.
According to the Complaint, De Colli purchased 5,700 shares of DRS common stock from 10 April to 29 2008, and 3,116 call options for the common stock of DRS between 15 April and 7 May 2008. De Colli purchased more than 2,400 of the call options on 6 May and seven, including certain options that were out-of-the-money by over $6 and which expired ten days after purchase. On 28 April 2008, De Colli liquidated securities that he had purchased in two other companies a week earlier in order to purchase additional DRS options. At that point, 100 percent of the holdings in De Colli’s US-based brokerage account consisted of DRS call options and DRS stock.
The SEC’s complaint further alleges that immediately following a 8 Wall Street Journal article reporting the advanced merger negotiations and after confirmation by DRS that it was engaged in talks regarding a potential strategic transaction, De Colli liquidated all of his call options and made his ill-gotten profit of more than $2.1 million on his initial investment of approximately $422,000. Finmeccanica later announced on 12 May 2008 that it would acquire DRS for $5.2 billion, or $81 a share.
The Commission’s complaint further alleges that, in an interview with SEC staff, De Colli stated that no family members, friends, or anyone else he knew had ever worked for Finmeccanica. According to the Complaint, contrary to his statement, however, De Colli’s older brother worked for Finmeccanica between 2004 and 2005.
By virtue of the conduct described above, the Commission alleges in its complaint that De Colli violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks a permanent injunction, disgorgement of ill-gotten gains with prejudgment interest, and civil money penalties.
The Commission acknowledges the assistance of the New York Stock Exchange and the Chicago Board Options Exchange in this matter.
The Commission’s investigation is continuing.