NEW YORK — The Securities and Exchange Commission on Monday sued a Philip Morris Cos. employee and two stockbrokers for insider trading stemming from Philip Morris' $13.1-billion takeover of Kraft Inc. in 1988.
According to the suit, the employee learned about the secret merger while checking the company's boardroom for bugging devices after a weekend meeting where the tender offer was discussed.
He then tipped off two stockbrokers, and the three made profits of about $334,000.
The suit, filed in Manhattan federal court, names Anthony Morelli, 52, of Englishtown, N.J., director of Philip Morris' Headquarters Services in New York; his son-in-law, Frank Petrone, 29, of Berkeley Heights, N.J., and James Zanengo, 30, also of Berkeley Heights.
Petrone and Zanengo had been stockbrokers at the Millburn, N.J., firm Rickel & Associates at the time of the alleged illegal trades.
The suit alleges that Morelli learned about the takeover and passed the information to Petrone, who then bought Kraft securities. Petrone, it is claimed, then passed the tip to his friend and co-worker Zanengo, who purchased securities for himself and told others about the pending deal.
A Philip Morris spokeswoman said the company had no comment on the case.
The SEC is asking the court to force Morelli to repay $104,271; Petrone, $211,108, and Zanengo, $184,430, representing illegal profits made by them and others who traded on the tips.
The commission is also seeking an order forcing them to pay civil penalties equal to three times the illegal trading profits.
According to the suit, Morelli had been asked to provide a meeting room and food services for 20 Philip Morris executives during the weekend of Oct. 15-16, 1988.
He participated in a security sweep of the executive floors the day before the meeting occurred, and then checked the boardroom Oct. 17 for listening devices.
He learned of the merger through discussions with another Philip Morris employee during the security check and then told the stockbrokers.
The merger was not announced until Oct. 30., 1988.