Fund Manager Accused of Insider Trading

The Securities and Exchange Commission on Tuesday sued hedge fund manager Nelson Obus, claiming his funds made $1.34 million after getting a tip about the merger of Allied Capital Corp. and SunSource Inc.

The suit says three hedge funds run by Obus, 59, founder and managing partner of Wynnefield Capital Inc., profited from inside information provided by a General Electric Capital Corp. employee who worked on the June 2001 deal.

After receiving the merger tip, Obus directed the purchase of 287,200 shares of SunSource stock at $4.75 on June 8, 2001, according to the SEC complaint. It was the largest purchase of SunSource shares Obus had ever made and amounted to more than 99% of the company’s stock traded that day, the SEC said.

Obus said in an interview that there was “absolutely no merit” to the claims. “They tried to shake us down to force us to admit guilt, but we’re standing up to this,” he said. “We expect to be completely exonerated, and we think we’ll give them a black eye, because they have no evidence.”

Obus said he managed about $400 million.