SEC v. Hovannisian: Executive Family Members Settle Insider Trading Claims
In SEC v. Hovannisian, No. 1:17-at-00617, 2017 (E.D. Cal. Aug. 10, 2017), defendants Damon Hovannisian, Vernon Hovannisian, Vincent Hovannisian, and Eddie Arakelian (collectively “Defendants”) consented to the entry of a permanent injunction against them, prohibiting future violations of the Securities Exchange Act Section 10(b) (“§ 10b”) and disgorgement of profits including prejudgment interest totaling $470,000 to settle securities fraud claims brought by the United States Securities and Exchange Commission (“SEC”) in United States District Court for the Eastern District of California.
The complaint alleged on August 20, 2014, two semi-conductor companies, International Rectifier and Infineon, publically announced that Infineon would acquire International Rectifier. On the day of the announcement, the trading price of International Rectifier’s shares closed up 47.21% from the previous day’s closing price. According to the complaint, Damon Hovannisian misappropriated material non-public information from his spouse (“Spouse”) without her knowledge. He allegedly obtained access to the information about the pending acquisition when his spouse worked on due diligence for the acquisition while on vacation with him in late July 2014. Spouse was the director of operations for International Rectifier in 2014 and worked on the acquisition deal. Damon Havonnisian then allegedly provided Defendants with material non-public information about the acquisition with the intention that they use the information to trade on. Defendants allegedly purchased stock in International Rectifier prior to the August 20, 2014, announcement, and promptly sold the stock, collectively receiving $155,000 in profits from the trades.
Rule 10b-5 prohibits the use of any device, scheme, or artifice to defraud and or engage in acts, practices, or courses of business which operated or would operate as a fraud or deceit upon any person in connection with the purchase or sale of any security. Fraud is considered to be in connection with a securities transaction if it was material to the decision to buy or sell a security.
Through their allegations, the SEC believed that Damon Hovannisian misappropriated confidential information from his spouse for securities trading purposes, and disclosed this information to Vernon Hovannisian, Vincent Hovannisian, and Eddie Arakelian with the intention to trade on the information. Due to this conduct and the evidence against Defendants the SEC believed it necessary to institute this action against Defendants to enjoin their violations of §10b and rule 10b-5 thereunder.
Defendants agreed to settle the claims brought by the SEC. In doing so, Defendants agreed to a permanent injunction prohibiting future violations of Section 10b of the Securities Exchange Act of 1934, to individually disgorge illegal trading profits from the fraudulent transaction, plus prejudgment interest, and pay a civil penalty equal to the amount of disgorgement.
The primary materials for this case may be found on the DU Corporate Governance website.