Securities Law - Section 10b-5 Insider Trading

Notwithstanding its incompetence in the handling of the Madoff Ponzi Scheme, the SEC can be thorough and aggressive, as indicated in the lawsuit filed by the SEC on March 11, 2010, SEC v. Berrettini and Pirtle, 1:10-cv-01614, in the U.S. District Court in the Northern District Court of Illinois.

In the Berrettini and Pirtle Complaint, the SEC charges both defendants with violations of Section 10b5. This Complaint also alleges that Pirtle, who tipped Berrettini, profited in the amount of $246,000.

Pirtle was an employee of a subsidiary of Royal Philips, a corporation organized in the Netherlands. Between 2001 and May 2006, Pirtle was employed as Director of Real Estate for Phillips Electronics North America, a wholly- owned subsidiary of Philips. Berrettini was a real estate broker with offices in Park Ridge, Illinois and a resident of Lake Forest, Illinois. The Complaint alleges, among other things, that Berrettini on 17 occasions transferred money to Pirtle which Pirtle described as loans, but according to the SEC they were kickbacks for confidential information furnished to Berrettini by Pirtle. The SEC Complaint gives several examples of the improper transfer of information to Berrettini by Pirtle in violation of his duties to his employer, Philips.

The Complaint alleges that Pirtle on several occasions misappropriated insider information from his employer Philips and provided it to Berrettini with the intent to enable Berrettini to trade on the information.

According to the Complaint, the improper activities started with an alleged joint venture between Berrettini and Royal. Eventually an agreement was reached to settle a dispute between Berrettini and Pirtle. Apparently that agreement was documented in a written agreement signed by Pirtle and Berrettini. Shortly after the agreement was signed, Berrettini bought a $36,000 car for Pirtle and sent him $15,000 allegedly for a gambling trip to Las Vegas.

According to the Complaint, Pirtle tipped Berrettini of three acquisitions of public companies. Berrettini in each case allegedly bought stock in advance of the public announcement of the acquisitions.

The SEC in its prayer for relief seeks a permanent injunction enjoining Pirtle and Berrettini from further violating Section 10(b) of the Exchange Act and Rule 10b-5 and to order the defendants Pirtle and Berrettini to pay to the Commission disgorgement of Berrettini’s ill-gotten gains from the alleged illegal trading, prejudgment interest and to order Pirtle and Berrettini to pay civil penalties pursuant to Section 21(A) of the Exchange Act in the amount of three times Berrettini’s ill-gotten gains resulting from the alleged illegal trading.

The Defendants have not as yet had the opportunity to respond to the Complaint by the SEC.

In conclusion, this is a thorough well-prepared Complaint by the local Branch office of the SEC in Chicago.

Special Note

The SEC alleges in the Complaint that its investigation is not complete.

Edward X. Clinton, Sr.
Copyright 2010