Intuit Insider-Trading Case Filed, Settled
Federal authorities Thursday accused six people of illegally profiting from insider trading of Intuit Inc. securities before the software company’s merger pact with Microsoft Corp. in 1994, and again before the $2-billion deal was scrapped a year later.
As the civil complaint was filed in federal court, the defendants--including the wife of Intuit’s former chief financial officer--simultaneously agreed to pay a total of $472,342 in returned profits and penalties in order to settle the case, the Securities and Exchange Commission said. They did so without admitting or denying guilt.
No employees of Intuit or Microsoft, nor the companies themselves, were among the defendants. The SEC said its investigation is continuing, and Intuit said it has been cooperating fully.
Intuit, based in Menlo Park, Calif., is a modest-size software concern with a big-hit product called Quicken, a personal-finance computer program that 6 million people use. In October 1994, Intuit agreed to be bought for stock by Microsoft, the software giant based in Redmond, Wash.
The SEC, in its complaint filed in U.S. District Court in San Francisco, said Intuit’s former chief financial officer, William H. Lane III, told his wife, Kathleen, of the pending merger and “trusted her” to keep the information confidential.
But, unknown to her husband, she then tipped off her son, James Propp, 33, who in turn told two of his business associates, Paul Tsang and Robert Guerin, both 37, the SEC alleged. The three men then bought Intuit stock and options to buy additional shares, the complaint said.
The complaint did not indicate that Kathleen Lane, 53, traded securities herself, but it did allege that some trades made by other defendants were made “for the benefit of Lane and her children” and that she also offered to make loans for some of the defendants’ trades in Intuit.
The SEC also alleged that Lane tipped off her daughter, Julie Propp, 35, who in turn told one of her friends, Luther Knox, 35, who also bought Intuit stock.
Intuit’s stock soared on Nasdaq after the merger was announced Oct. 13, 1994.
But seven months later, the SEC alleged, Kathleen Lane learned from her husband that the merger was in trouble, and she told James Propp and Tsang, who then told Guerin. The three men then sold Intuit stock and bought Intuit put options, which are effectively bets that the stock’s price will fall, the agency claimed.
The companies abandoned the deal May 20, causing Intuit’s stock to plunge, after the Justice Department earlier had sued to block the merger on antitrust grounds.
William Lane, 58, stepped down as active chief financial officer April 1 and plans to retire July 31. Intuit spokeswoman Sheryl Ross said his departure is not related to the SEC’s investigation. Lane has been attempting to retire for more than two years, she said.
The Lanes could not be reached; messages left at William Lane’s office and at the couple’s home were not immediately returned.
The SEC said the defendants agreed to these terms in their consent decrees:
* Kathleen Lane will pay penalties totaling $202,803.
* Julie Propp will pay penalties totaling $4,000.
* James Propp, Tsang and Guerin each will return profits of $62,602 and pay interest and penalties of $20,309.
* Knox will return profit of $14,998 and pay interest of $1,808.
