NEW YORK May 19 A lawyer for the U.S. Securities and Exchange Commission told jurors Monday a New York fund manager had made a "jackpot" $1.3 million trading on inside information days before a 2001 merger.
At the start of a civil trial in New York federal court against Nelson Obus, SEC lawyer Paul Kisslinger said the Wynnefield Capital Inc fund manager made the illegal profits trading off a tip ahead of the takeover of industrial products supplier SunSource Inc.
The tip originated with Thomas Strickland, a former employee at General Electric Co's GE Capital working on the deal, Kisslinger said. Strickland told his friend Peter Black, an analyst at Wynnefield, who then told Obus, he said.
"So as you consider this case, remember four things: Tip, tip, trade, jackpot," Kisslinger told jurors.
But Joel Cohen, a lawyer for Obus, said for his client to be liable, he would have to be the "most unskilled and lamest insider trader in history."
Cohen asked jurors to question SEC claims that Obus told top executives of SunSource and acquirer Allied Capital Corp about the alleged tip, noting an insider trader normally would keep something like that secret.
"The problem is, confessing is the opposite of concealing," Cohen said.
The trial of Obus, Black and Strickland marks the latest test for the securities regulator amid a push by SEC Chair Mary Jo White to strengthen enforcement and take more cases to trial.
On May 12, a federal jury sided with the SEC, finding Texas businessman Samuel Wyly and the estate of his brother, Charles, liable for fraud in connection with undisclosed stock trading in offshore trusts.
Filed in 2006, the lawsuit in the Obus case centers on the 2001 $72 million buyout of SunSource by private equity firm Allied Capital. GE Capital was a lender to SunSource during the deal.
Kisslinger told jurors Monday that after Strickland began working on the deal, he called Black, a friend from college, and told him about it.
After the May 24, 2001, call, Black told Obus, Kisslinger said. Obus then called SunSource's chief executive, Maurice Andrien, telling him a "little birdie" at GE said SunSource was going to be sold.
Obus subsequently on June 8 directed Wynnefield to buy a large block of SunSource stock, he said, 11 days before the deal was announced.
"He knew what horse would win the race before he placed his bet," Kisslinger said.
But Cohen said Strickland only called Black to ask him about SunSource's management since Wynnefield was a shareholder.
And while Obus called Andrien, it was to tell him his concerns the company would engage in a different type of transaction that would affect shareholders. The idea Obus would tell Andrien he got a tip about the merger "just makes no sense," Cohen said.
The trial, which is expected to run two weeks, will continue Tuesday with further opening statements.
The case is Securities and Exchange Commission v. Obus et al, U.S. District Court, Southern District of New York, No. 03150. (Reporting by Nate Raymond in New York; Editing by Noeleen Walder and Eric Walsh)