SEC Fines Former MLB Baseball Player $2.5 Million for Insider Trading
Yoomi Lee | Bloomberg Law
Former Major League Baseball player Douglas V. DeCinces settled charges with the Securities and Exchange Commission (SEC) for purchasing Advanced Medical Optics, Inc. (Advance Medical) securities while in possession of material, non-public information. The SEC further charged three individuals who purchased Advance Medical securities based on material, non-public information provided by DeCinces. The SEC alleged that DeCinces and the three individuals violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5 and 14e-3 thereunder. Without admitting or denying the charges, DeCinces, Joseph J. Donohue, Fred Scott Jackson, and Roger Wittenbach agreed to permanent injunctions from future violations and consented to pay $2.5 million, $113,355, $293,026, and $422,366 in disgorgement, prejudgment interest, and civil penalties, respectively.
DeCinces’ Violative Conduct
According to the SEC’s complaint, an Advance Medical employee (Source) informed DeCinces of Abbott Laboratories, Inc.’s (Abbott) impending plan to purchase Advance Medical through a tender offer. In particular, the Source purportedly provided confidential information regarding the status of the transaction, such as the exchange of drafts of the merger agreement. Although DeCinces allegedly knew that the Source was under a duty to keep such information confidential, in the weeks preceding the announcement of the acquisition, DeCinces purchased at least 83,700 shares of Advance Medical through several brokerage accounts. When Advanced Medical announced the merger on January 12, 2009, its stock price increased approximately 143 percent. The next day, DeCinces sold all of his Advance Medical shares and made an illegal profit of approximately $1.3 million according to the SEC.
DeCinces Tipped Material Non-public Information
DeCinces also allegedly provided information about Abbott’s acquisition of Advance Medical to three individuals with whom he had personal relationships. Specifically, Donohue was DeCinces’ physical therapist, Jackson was a real estate lawyer with whom DeCinces had a social relationship, and Wittenbach was a business man who was DeCinces longtime friend. All three individuals purportedly bought Advance Medical securities based on DeCinces’ recommendations. According to the SEC, they sold the securities immediately following the public announcement of the acquisition for a profit.
The SEC charged that even in the absence of any fiduciary duties, DeCinces and the three individuals had a duty to abstain from trading Advance Medical securities. The Source derived or intended to derive a direct or indirect benefit from disclosing the information regarding the acquisition to DeCinces and, in turn, DeCinces tipped the material, non-public information to the three individuals intending it to be a gift to them or to benefit himself. As a result, the SEC alleged that they DeCinces and the individuals knew or had reason to know that the information was confidential. Accordingly, trading on the information violated Exchange Act Sections 10(b) and 14(e) and Rules 10b-5 and 14e-3 thereunder.
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