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SEC Insider Trading Alert: Teo’s Musicland Insider Trading Appeal Unsuccessful

On February 10, 2014, the Third Circuit Court of Appeals affirmed a lower federal court’s jury verdict of insider trading against Alfred Teo and a trust he controlled.  Alfred Teo Sr., a former shareholder in Musicland Stores Corp…..

SEC Insider Trading Alert: Teo’s Musicland Insider Trading Appeal Unsuccessful

On February 10, 2014, the Third Circuit Court of Appeals affirmed a lower federal court’s jury verdict of insider trading against Alfred Teo and a trust he controlled.  Alfred Teo Sr., a former shareholder in Musicland Stores Corp, a conglomerate company that oversaw numerous music endeavors including Sam Goody music stores and Suncoast Motion Picture Co. video shops, was found guilty of insider trading.  Teo and his trust were ordered to disgorge gains of $17,000,000 and to pay prejudgment interest of an additional $14,000,000.  Teo received and traded on confidential information from insiders of Musicland about an impending all cash tender offer by Best Buy for all the shares of Musicland. The decision in SEC v. Teo is another stark illustration of the painful economic consequences of insider trading.

The perceived benefits of trading on material nonpublic information are usually overwhelmed by the emotional, reputational and economic sanctions that flow from detection and prosecution by federal authorities.  Teo misappropriated valuable nonpublic information and shared it with others who also traded.  Everyone who receives and trades on nonpublic information can pay the price.  Under federal securities laws, insider trading law subjects the wrongdoer to the equitable remedy of disgorgement of all ill-gotten economic gains.  In addition, prejudgment interest on the disgorgement amount, calculated from the date of the violation at the IRS underpayment interest rate, can be awarded.  Furthermore, a money penalty in an amount up to the amount of the ill-gotten gain also can be imposed.  Those found guilty of insider trading also can be permanently barred from serving as an officer or director of a public company.  Securities Exchange Commission investigations and litigation can drag on for, literally, years with ever mounting legal fees, anxiety and stress.

Historically, the SEC has enjoyed a success rate of nearly 80% in the cases that go to trial.  Although the agency has lost some high profile cases recently, the odds and the costs are still heavily tilted in favor of the government when it brings insider trading charges.  Despite its stellar track record, the SEC encourages and rewards cooperation by those who become parties to SEC insider trading investigations. If you believe you may be involved in a questionable securities transaction, you should contact an experienced securities lawyer right away.  KHF provides confidential consultations and represents parties in SEC enforcement investigations and securities litigation.

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