SEC Accuses State Official, 5 Others of Insider Trading
Federal regulators on Wednesday accused a state official and five others of insider trading activities in connection with a 1992 HMO merger, and said four of them agreed to pay $776,254 in penalties and returned profits to settle their cases.
A federal civil complaint accuses Dr. Jacob Y. Terner, then chairman of Century Medicorp, and Theodore W. Dutton, then a company director, of passing confidential information about a pending merger between Century and Foundation Health Corp. to friends and relatives, who profited by trading on those tips, the Securities and Exchange Commission said.
Dutton is now executive officer of the State Allocation Board, which allocates money for construction and maintenance of public school buildings.
No employees of Foundation Health--a large HMO which has since been renamed Foundation Health Systems--or the company itself are among the defendants.
On July 14, 1992, Foundation Health, which is based near Sacramento, said it would acquire Century in a stock swap worth about $150 million. Los Angeles-based Century operated three small HMOs and two hospitals.
Century’s stock soared from $11.50 a share on July 10, 1992, to $22.75 on the day the merger was announced, an SEC official said. Trading volume was unusually heavy in late June and early July, the official said.
The SEC complaint, filed in federal court in Los Angeles, accuses Terner of tipping a friend, Dr. Nissan Kahen, about the merger. Kahen is accused of telling his brother, Parviz Kahen.
Dutton, according to the complaint, told his friend and business associate, George Voigt. Dutton’s daughter-in-law Andrea Guillen Dutton is also accused of trading Century stock “while in possession of material, nonpublic information.”
Neither Terner nor Dutton is accused in the complaint of profiting from stock trades before the merger.
Under the settlement, the four defendants neither admitted nor denied guilt.
Two defendants, Theodore Dutton and Voigt, have not agreed to settle, and the cases against them continue, said Karen Matteson, SEC senior trial counsel in Los Angeles.
Kendall MacVey, a Riverside attorney representing Voigt, said his client denies the allegations and will “vigorously contest” them. Dutton’s attorney, Aulana Peters of Los Angeles, also said her client will fight the charges.
The SEC said Terner will pay a penalty of $225,750, an amount equal to the profits of his alleged tipee, Nissan Kahen; Kahen will return profits of $225,750 and pay a penalty of $265,750. Andrea Dutton will pay $16,002 in returned profits and an equal amount in penalties, and Parviz Kahen will pay $27,000 in returned profits.
