The Securities and Exchange Commission charged three software company founders with insider trading and forced them to disgorge $5.8 million in illegal profits, penalties and interest. Insider trading occurs when people in high levels of management trade company securities based on non-public information.
Lawson Software’s co-chairman, Herbert Richard Lawson, tipped his brother and a family friend (both retired from the company in 2001) about the probable sale of the company to Infor Global Solutions, a privately held software provider. While negotiations were occurring, the media learned of a possible merger. Lawson Software’s stock price began to climb based on analyst reports of a possible bidding war with more than one company considering acquiring Lawson Software. The reports were predicated on an article indicating that Lawson Software conducted a “market check” through its financial advisor to see if there were any other companies interested in a merger.
But Infor Global was the only company interested in buying, as the market check produced “little-to-no interest.” Lawson Software notified the public that Info Global offered to pay $11.25 per share, however, the media was still reporting incorrectly that other companies were interested in acquiring the company and that the merger would likely be for $15-16 per share. Those companies listed in the media reports were actually the same companies that declined purchasing Lawson Software in the market check investigation.
The SEC charged defendants both knew the reports were false and Infor Global would not increase its offer any more than $11.25. But in face of that knowledge, Lawson, his brother and his friend sold shares of the company for approximately $1 over Infor Global’s price, pocketing millions. Defendants agreed to disgorge the profits and “to the entry of final judgments enjoining them from future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.”
An associate director in the SEC’s Division of Enforcement stated, “Richard Lawson conveyed material information that was contrary to what was being publicly reported, and his brother and friend made a windfall when they subsequently sold their company shares at inflated prices.” He further stated, “When news surfaces about the possibility of a merger and details of the media reports are incorrect, it is illegal for insiders who know the true facts to trade and profit.”