Stephen J. Cowley

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 16812 / November 29, 2000

Securities and Exchange Commission v. Stephen J. Cowley, 00 Civ. 9045 (JGK) (S.D.N.Y.)

SEC CHARGES BRITISH EXECUTIVE WITH INSIDER TRADING

The Securities and Exchange Commission today announced that on November 28, 2000, it charged Stephen J. Cowley, a British subject and resident, with insider trading in the securities of 4Front Technologies, Inc., in advance of the August 3, 2000 public announcement that NCR Corporation would acquire 4Front. At the same time that the complaint was filed, the Commission sought a temporary restraining order freezing Cowley's assets located in the United States. The Honorable John G. Koeltl, United States District Judge in the Southern District of New York, issued an order, with Cowley's consent, freezing all assets located in the United States with the exception of $10,000 that Cowley could use to retain counsel. The frozen assets include a brokerage account maintained by Cowley at Salomon Smith Barney that yesterday held assets worth over $280,000.

The Commission's complaint alleges that in the three weeks immediately preceding the 4Front/NCR merger announcement, Cowley purchased 8,000 shares of 4Front common stock and 460 call options in the August $12.50 series, at a cost of over $250,000. According to the complaint, Cowley, who had never purchased options before, was essentially the only purchaser of this series of call options because he bought 460 of the 464 options sold during this period. The complaint further alleges that Cowley sold other securities and borrowed funds from Salomon in order to pay for his purchases of 4Front securities. After the announcement on August 3, Cowley sold his entire position of 4Front securities realizing illicit trading profits of $127,288.

The complaint also alleges that Cowley revealed his highly specific knowledge of material nonpublic information in a series of tape-recorded conversations Cowley had with his broker when he purchased the 4Front securities. Among other things, the complaint alleges that in these conversations:

  • Cowley expressed his desire to purchase as many 4Front securities as he could, limited only by his ability to pay for his purchases;

  • Prior to making his first-ever options purchase, Cowley said that he wanted to make a phone call to an unidentified third-party "just to make sure of how strongly I feel about this";

  • Cowley was concerned that his purchases not generate scrutiny; and

  • Cowley revealed his knowledge of material nonpublic information concerning the merger negotiations, including information about the price of the proposed transaction, and the timing of the contemplated agreement and announcement. For example, in a conversation that took place on August 1, Cowley said that people from 4Front were "flying to the U.S. today to sign the deal," that he thought the "deal will get signed tomorrow," and that the parties are "planning to announce Thursday [August 3]."

The Commission alleges that Cowley violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In its action, the Commission is seeking a permanent injunction, disgorgement, prejudgment interest, and civil penalties. The Commission also had sought a temporary restraining order freezing assets to prevent Cowley from removing them beyond the jurisdiction of the Court. In documents filed in support of its application for the asset freeze, the Commission stated that immediately prior to the filing of the case Cowley had instructed his broker to wire $60,000 out of his U.S. brokerage account. In addition to the order freezing assets described above, Judge Koeltl also required Cowley to identify assets and their location worth up to a total amount of $520,000.

The Commission acknowledges the assistance provided by the American Stock Exchange in this matter.