The Formerly Famous Should Probably Stay On The Securities Fraud Sidelines
When deciding which cases to pursue, the SEC considers a number of different factors. One of these, as we know from Rob Khuzami’s public speeches, is deterrent impact. That is, which cases will most effectively signal to other potential bad actors that the SEC is watching and will enforce the securities laws in a way that would punish misconduct. From time to time, one of the factors playing into that analysis is the fame of the potential defendant. The Commission has demonstrated this repeatedly. Among others, it has sued a baseball player, a 1970s cop-show actor, and a world-famous home fashion doyenne. A hip hop star who might have had some securities-related Twitter problems drew scrutiny recently.
The truth is the staff can bring only so many cases, and it has to get as much deterrent value as it can from the cases it does pursue. If more people will read about a former ballplayer’s insider trading case than the same sort of case involving a person who happens not to have been famous, the staff might focus on the ballplayer. Jeff “Whitey” Richardson now knows it as well as anyone. Richardson, who played for the Cincinnati Reds, Pittsburgh Pirates, and Boston Red Sox in the early 1990s, recently found himself caught in an insider trading tangle.
According to the SEC’s litigation release, Genesis Energy, LP had planned for several months to acquire several energy-related businesses before announcing the acquisitions in April 2007. The Commission claims that Richardson received confidential information about those acquisitions from a “Knowledgeable Person” who was an officer and director of several of those businesses. Richardson then bought units of Genesis on six separate dates between February and April 2007. He also tipped two family members and a friend who traded in Genesis securities. “Together, Richardson, his family members and the friend made profits of $88,026 from their illegal trading,” the release says. The SEC’s complaint says Richardson misappropriated the information from the Knowledgeable Person, who testified that he was surprised to learn about Richardson’s trading.
All in all, it’s not the most shocking insider trading case one has ever seen. But there was Richardson, with his Major League career behind him, and he was not likely to walk away from this unscathed. Richardson has agreed to settle the claims. Three things are worth mentioning about the case. First, the matter settled on a “one-and-one” basis, as the SEC likes to do with insider trading cases. That is, Richardson has agreed to pay disgorgement of $88,026 (the first “one”), a civil penalty of an equal amount (the second “one”), and prejudgment interest on the disgorgement figure. Second, while Richardson’s friends and family members apparently traded based on his tips, Richardson is the only named defendant and the only person paying for those trades. Maybe the SEC could not establish that Richardson’s tippees knew the tips were based on material, nonpublic information.
Finally, Richardson has agreed to settle the matter “[w]ithout admitting or denying the complaint’s allegations . . . .” By itself, this is not especially noteworthy. After all, the SEC settles almost all of its complaints on that basis. But Richardson sort of denies the complaint’s allegations. In the Omaha World-Herald on Nov. 26th, Richardson is quoted as saying, “We don’t feel like we did anything wrong. To fight these guys in Washington, the expense it would have cost, is just crazy. It was cheaper for us to settle it and move on.” It will be interesting to see if there are repercussions from his comments.