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 A federal jury in Manhattan found Nelson Obus, a fund manager at
Wynnefield Capital Inc, not liable on an SEC claim he traded on
inside information about a takeover of industrial products supplier
SunSource Inc.
The jury also found Peter Black, a Wynnefield analyst, and Thomas
Strickland, a former employee at General Electric Co's <GE.N> GE
Capital who worked on the deal, not liable on insider trading
charges.
Obus hugged his lawyer after the verdict was read. Outside the
courtroom, he criticized the SEC for engaging in a "12-year campaign
of regulatory overreach." He promised to push for policy changes "to
ensure this doesn't happen again."
"There's no better use of one's wealth than to clear one's name and
reputation," he said.
Mark Cohen, Black's lawyer, said his client was "looking forward to
getting on with his life."
John Nester, a spokesman for the SEC, said the agency was
"disappointed" but respected the verdict.
SEC Chair Mary Jo White has been pushing to strengthen enforcement
and take more cases to trial. This fiscal year, the SEC has already
finished 23 trials including the Obus case, compared to 16 all of
last year.
On May 12 in the same Manhattan courthouse, a jury found Texas
businessman Samuel Wyly and the estate of his brother, Charles,
liable for fraud in connection with undisclosed stock trading in
offshore trusts.
The SEC filed its lawsuit against Obus, Black and Strickland in 2006
after years of investigation focused on the $72 million buyout of
SunSource by private equity firm Allied Capital Corp.
GE Capital was a lender to SunSource on the deal. After Strickland
was assigned to it, he called Black, a college friend, on May 24,
2001.
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The SEC says on the call, Strickland disclosed the deal to Black,
who in turn told Obus, who already had funds invested with
SunSource.
Obus then called SunSource's chief executive, Maurice Andrien.
During trial, Andrien testified that when he called back, Obus told
him a "little birdie" said SunSource was going to be sold.
The SEC said Obus relied on that tip in directing Wynnefield to buy
a large block of SunSource stock on June 8. The merger was announced
11 days later.
The defendants argued that Strickland called Black not to provide a
tip but to ask about SunSource's management after he noticed his
friend's fund had a large stake in it.
The defendants said Obus called Andrien after learning GE was
looking to do business with SunSource to express concerns about the
company taking on debt, not to discuss merger plans.
The case is Securities and Exchange Commission v. Obus et al, U.S.
District Court, Southern District of New York, No. 06-03150.
(Reporting by Nate Raymond in New York; Editing by Noeleen Walder,
Jonathan Oatis and David Gregorio)
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