Joseph F. Doody IV, Joseph F. Doody, and Diane C. Neiley

Litigation Release No. 17225 / November 8, 2001

Securities and Exchange Commission v. Joseph F. Doody IV, Joseph F. Doody, and Diane C. Neiley, 01 Civ. 9879 (DC) (S.D.N.Y.)

SEC CHARGES THREE WITH INSIDER TRADING

The Securities and Exchange Commission today filed an injunctive action in the United States District Court for the Southern District of New York, alleging that Diane C. Neiley, a former employee of BetzDearborn Inc., Joseph F. Doody IV (Doody), and his father, Joseph F. Doody (Doody Sr.), engaged in illegal insider trading in advance of the July 30, 1998 announcement that BetzDearborn Inc. and Hercules Inc. had agreed to merge. The complaint alleges that Neiley, an executive assistant at BetzDearborn, learned confidential information regarding the merger and tipped her then-boyfriend, Doody, who in turn tipped his father, Doody Sr. According to the complaint, Doody purchased BetzDearborn common stock and call options that he sold after merger announcement, realizing $240,953 in illegal profits. The complaint alleges that after being tipped by his son, Doody Sr. bought BetzDearborn common stock that he sold after the announcement for unlawful profits of $30,813.

The complaint further alleges:

  • In June 1988, Neiley learned about the pending merger between BetzDearborn and Hercules and then told Doody about the negotiations. As Neiley learned about additional developments in the merger negotiations, she passed the information on to Doody.

  • Before the merger announcement, Doody purchased 425 shares of BetzDearborn common stock and 100 call options. These purchases concentrated approximately 94% of Doody's liquid assets (approximately $22,300 of $23,800) in BetzDearborn securities.

  • After Doody tipped his father Doody Sr. with secret information about BetzDearborn's merger plans, Doody Sr. bought 1,000 shares of BetzDearborn common stock for a cost of $37,625.

  • On July 30, 1998, BetzDearborn and Hercules announced that they agreed to merge and that Hercules would pay $72 per share for all outstanding BetzDearborn shares. After the announcement, BetzDearborn common stock opened at $68.25 per share, an increase of $32.375, or approximately ninety percent (90%), over the prior day's closing price.

  • After the July 30, 1998 announcement, Doody sold his BetzDearborn securities for an illegal profit of $240,953, and Doody Sr. sold his BetzDearborn shares for an illegal profit of $30,813.

Doody, age 33, Doody Sr., age 56, and Neiley are residents of Pennsylvania. During 1998, Doody was an employee of a registered broker-dealer, investment adviser, and municipal securities dealer.

The Commission alleges that as a result of the conduct described above, Doody, Doody Sr., and Neiley violated Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. In its action, the Commission is seeking permanent injunctions, disgorgement of the illegal trading profits, prejudgment interest, and civil penalties. Without admitting or denying the facts alleged in the complaint, Neiley has consented to the entry of a final judgment that permanently enjoins her from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, but does not impose penalties based on her sworn financial statement.

The United States Attorney for the Southern District of New York today announced criminal charges against Doody, arising from the same conduct alleged in the Commission's complaint.

The Commission gratefully acknowledges the assistance provided by the Pacific Stock Exchange in the investigation of this matter. This is the Commission's second insider trading case concerning the merger of BetzDearborn and Hercules. See SEC v. Rodolfo Luzardo, et al., 01 Civ. 9206 (DC) (S.D.N.Y.) (filed October 18, 2001) (Litigation Release No. 17197). The Commission's investigation into insider trading before the announcement of the merger of BetzDearborn and Hercules is continuing.