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Look Who's Insider Trading: Middle America

Courts: An SEC case involving IBM-Lotus merger highlights a trend of those less knowledgeable about securities wrongly profiting from stock tips.

May 27, 1999|From Associated Press

NEW YORK — One of the largest insider trading cases in history started, simply enough, when an IBM secretary gave her husband a tip on an upcoming deal.

Within hourson June 2, 1995, more than two dozen people had bought stock, betting that International Business Machines Corp. was about to acquire Lotus Development Corp., the government said Wednesday.

When the deal was announced three days later, the loose-knit group of friends, acquaintances and colleagues had gained $1.3 million, though the secretary and her husband made only $7,500, the Securities and Exchange Commission said. Juan Marcel Marcelino, district administrator of the Boston SEC office that handled the investigation, said the case was one of the largest ever in terms of the number of people charged.

SEC Enforcement Director Richard Walker said the case exposed a trend in which people with less knowledge of the securities industry were increasingly trying to act illegally on tips about information that is required by law to be kept a secret.

"We've seen a shift away from the Wall Street kingpins to Main Street America," he Insider said. "In many cases we've brought over the past couple of years, the amounts are much smaller and the people are not Wall Streeters. They are neighbors, cousins, friends, business or . . . acquaintances."

The case, filed Wednesday in U.S. District Court in Manhattan against 25 people, began when Lorraine K. Cassano told her husband, Robert, about the Lotus acquisition, the SEC said. He told two friends, including a man whose brother owned a delicatessen.

The delicatessen owner then allegedly told some of his best customers, including a doctor who stopped for lunch, the SEC said. Others learned in similar fashion.

The securities purchases paid off when IBM announced its takeover offer for Lotus. The value of Lotus common stock leaped from $32.50 per share to more than $61 per share, an increase of nearly 90%.

Lorraine Cassano, a secretary in the volumes and revenue department of the software group at IBM in Somers, N.Y., at the time of the insider trades, was suspended when IBM learned of the investigation. The North Salem, N.Y., resident was later fired, the SEC said.

Among those charged in the case was a pizzeria owner, a bank vice president, a private school teacher, a grocery store owner, a lawyer, the president of a direct-mail marketing company, a doctor, an engineer and several stockbrokers. Of those charged, 13 live in Staten Island, N.Y., and six live in New Jersey.

The SEC said Cassano first learned of the pending Lotus deal when she was asked to copy documents in late April or early May 1995. On May 5, 1995, her supervisor told her that IBM would be taking over Lotus, the SEC said.

On May 31, 1995, she learned that the board had authorized the company to make an offer for Lotus and that it would be announced on June 5, the SEC said. Cassano then violated strict policies at IBM forbidding employees from disclosing nonpublic information, especially about the Lotus deal, the SEC said.

In its court papers, the SEC asked the court to order the defendants to obey all securities laws, return any illegally obtained profits and be fined civil penalties up to three times their ill-gotten gains.

The SEC said Robert Cassano pleaded guilty to insider trading on Jan. 15, 1998.

The Cassanos could not immediately be reached for comment.

Many of the defendants tried to conceal their trades or the illicit nature of their trading by lying under oath about the reasons for their trades and denying they knew others in the group, the SEC said.

Others who have pleaded guilty thus far are lawyer Carmine DeSantis of Staten Island, salesman Michael Paul Green of Edison, N.J., computer technician P. Gerard Mazzone of Staten Island, deli owner Peter G. Mazzone of Staten Island, computer technician Joseph Petrosino of Brooklyn, N.Y., and Dr. Gary Spierer of Staten Island.

The SEC said both Cassanos have already settled the SEC civil charges, agreeing to obey securities laws and to pay back profits.

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