Ex-Southland Oil Firm Director Indicted
A former director of Santa Fe International Corp. was indicted Thursday on charges of taking part in an insider-trading scheme that allegedly earned him $285,000 during the Kuwait government’s 1981 takeover of the Southern California-based oil and gas company.
Darius N. Keaton, 61, was indicted by a federal grand jury in New York on charges that he illegally used advance knowledge of the takeover to buy stock and options through a Swiss bank account. Keaton is also alleged to have illegally passed word of the takeover to an associate in the scheme, which netted participants more than $8 million and ranks among the largest of insider-trading cases, according to authorities.
The case also marks the first time that U.S. authorities have used a 1977 U.S.-Swiss treaty to pierce the secrecy that has shielded Swiss bank accounts from investigators, authorities said.
Those who have relied on the secrecy of Swiss accounts to hide money “may now be sorely surprised,” said Gary Lynch, chief of enforcement for the Securities and Exchange Commission, who announced the indictment at a joint press conference with Rudolph W. Giuliani, U.S. attorney for the Southern District of New York.
Keaton, who lives in San Francisco and Los Angeles, was charged with one count of conspiracy, 11 counts of securities fraud and six counts of mail and wire fraud. He faces up to five years imprisonment on each count and fines that could total as much as $126,000.
Three years ago, the former oil and gas consultant disgorged $285,000 in alleged profits, but did not admit guilt, to settle a civil suit brought by the commission. Milton Gould, a New York attorney representing Keaton, declined to comment on the indictment.
The SEC continues to press several civil suits brought against others suspected of insider trading, including one case pending in federal court in New York that names six persons. Prosecutors will not disclose whether other indictments are expected against any named in those suits but say they are continuing their investigation.
The indictment charges that Keaton learned of the impending takeover in early August, 1981, during a vacation with Santa Fe’s chairman and another director. Returning to San Francisco, according to the indictment, he quickly bought 10,000 shares of Santa Fe stock through Credit Suisse of Geneva under the assumed name of Nadir Katir Mabrouk.
He denied to company officials and to the SEC that he had purchased any stock. When Santa Fe, which was then headquartered in Alhambra but which has since moved to Orange, publicly announced its purchase by Kuwait Petroleum Co., the national oil company, the value of Keaton’s shares rose to $510,000.
Prosecutors said they could not have built their case against Keaton without information from his Swiss account. U.S. authorities were turned down in their first request for such information, said Kenneth I. Schacter, assistant U.S. attorney, but data provided in response to the second request “really gave us the core of our case.” Keaton is also accused of passing information about the takeover to Costandi N. Nasser, a Jordanian who lives in Paris, London and Beirut. Nasser allegedly used the tip to buy 30,400 shares of Santa Fe and options to purchase another 235,000 shares. Together, the purchases netted him $4.6 million, according to authorities.
Nasser has not been indicted but is among those named in the SEC civil suits. He is the sole shareholder of Parkmount Group Ltd., a corporation with principal offices in New York City.
Giuliani and Lynch used the occasion of the indictment to assert that federal enforcement of insider trading is vigorous and effective, despite the contention of some legal experts that authorities are sorely outmatched in efforts to keep insiders from cashing in on their knowledge.
Giuliani said 30 people have been convicted and 14 sent to jail in the past two years for such offenses. In all, he said, authorities have brought 45 insider-trading cases, and 40 of them have resulted in convictions.
