On September 20, 2012, the SEC brought three separate insider trading cases related to an illegal tip about an impending merger. The SEC alleges that H. Thomas Davis, Jr., breached his fiduciary duty to Mercer Insurance Group by passing on confidential information about the company’s negotiations to be acquired by another company. Davis tipped his friend and business associate Mark W. Baggett with the nonpublic information, and Baggett later tipped his golfing partner Kenneth F. Wrangell. Baggett and Wrangell made more than $83,000 in illicit profits trading on the tip.
When contacted by SEC investigators, Wrangell immediately cooperated, giving investigators details acknowledging his own trading and entering into a cooperation agreement that resulted in direct evidence being quickly developed against the other two. This cooperation allowed the SEC to reach quick settlements.
The three are charged with violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. In settling the SEC’s charges, Davis agreed to be jointly and severally liable for disgorgement of Baggett’s insider trading profits of $41,584.45 plus prejudgment interest as well as to pay a penalty of $41,584.45. Davis also agreed to be barred from serving as an officer or director of a publicly-traded company. Baggett agreed to pay disgorgement and a penalty in amounts that will be determined by the court. Wrangell agreed to fully disgorge his ill-gotten gains of $42,521.55 plus prejudgment interest. Because of his cooperation, the additional penalty that Wrangell is required to pay on top of that disgorgement amount has been reduced to $11,380.39.