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Securities and Exchange Commission v. Tome

decided: November 20, 1987.

SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF-APPELLEE,
v.
GIUSEPPE B. TOME, PAOLO MARIO LEATI, LOMBARDFIN S.P.A., TRASATLANTIC FINANCIAL CO., S.A., NAYARIT INVESTMENTS, S.A., FINVEST UNDERWRITERS AND DEALERS CORP., CERTAIN PURCHASERS OF THE COMMON STOCK AND CALL OPTIONS FOR THE COMMON STOCK OF ST. JOE MINERALS CORP., AND BANCA DELLA SVIZZERA ITALIANA, DEFENDANTS, PAOLO MARIO LEATI, LOMBARDFIN S.P.A., TRASATLANTIC FINANCIAL CO., S.A., NAYARIT INVESTMENTS, S.A., AND FINVEST UNDERWRITERS AND DEALERS, DEFENDANTS-APPELLANTS



Two appeals from a judgment entered in the Southern District by Judge Milton Pollack, holding appellants liable for violations of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10-5 promulgated thereunder and directing disgorgement of profits from their insider trading. Affirmed.

Lumbard, Oakes, and Cardamone, Circuit Judges.

Author: Lumbard

LUMBARD, Circuit Judge:

On March 10, 1981, one day before Joseph E. Seagram & Co. ("Seagram") announced a hostile tender offer for St. Joe Minerals Corporation ("St. Joe"), Giuseppe B. Tome and his associates ordered massive purchases of St. Joe securities. Less than three weeks later, the SEC filed this suit originally charging Banca Della Svizzera Italiana ("BSI"), Irving Trust Company and "certain purchasers of call options for the common stock of St. Joe Minerals Corporation" with violations of the anti-fraud provisions of the federal securities laws. The complaint was amended on several occasions and ultimately named Tome, three Panamanian corporations in which he owned a beneficial interest (Trasatlantic Financial Co., S.A., Nayarit Investments, S.A., and Finvest Underwriters and Dealers Corp. (collectively the "Panamanian corporations" or "Panamanian defendants")), the "certain purchasers", Paolo Mario Leati, Lombardfin, S.p.A. and BSI as defendants.

After a bench trial on October 23, 1985, in the Southern District of New York, Judge Milton Pollack found that the defendants had violated sections 10(b) and 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78n(e) and Rules 10b-5 and 14e-3. SEC v. Tome, 638 F. Supp. 596 (S.D.N.Y. 1986). By a judgment entered on July 22, 1986, Judge Pollack enjoined the defendants from violating the antifraud provisions of the federal securities laws and ordered them to disgorge over $2.7 million in profits obtained through trading on nonpublic information (plus over $1.3 million in prejudgment interest). The Panamanian corporations*fn1 and Leati and Lombardfin appeal from that judgment.

Leati and Lombardfin claim that the district court lacked personal jurisdiction over them because of defects in the service of process. The Panamanian corporations join them in making three additional arguments: (1) they challenge the admissibility of the deposition testimony of Dionisio G. Csopey; (2) they attack the sufficiency of the evidence; and (3) they contend that the district court improperly ordered disgorgement of their profits. We affirm.

We summarize the salient facts, more fully recorded in the district court's opinion. The case of the Securities and Exchange Commission focused on Giuseppe B. Tome, an Italian national now residing in Switzerland. Tome began working as a registered representative in the securities industry at the Milan office of Bache & Co. in 1959. He moved to E.F. Hutton & Company, Inc. where he eventually became president of E.F. Hutton, International, S.A., and a director of E.F. Hutton & Company, Inc. In 1979, Tome resigned from Hutton and formed his own investment company, Compagnie Pour le Financement et l'Investissement, S.A. (Finvest Geneva) in Geneva, Switzerland. Tome is also a beneficial owner of the defendant Panamanian corporations. In March 1981, when the illegal transactions took place, he enjoyed discretionary power over their accounts at BSI, a Swiss bank based in Lugano, Switzerland.

Paolo Mario Leati is a sales representative and Lombardfin is a broker/dealer both of whom are registered with the SEC. In 1974, Leati, an Italian national living in Italy, and Dionisio G. Csopey left Merrill Lynch, Pierce, Fenner & Smith, Inc. and formed Lombardfin, S.p.A., a holding company whose subsidiaries and affiliates engage in securities and currency brokerage. Leati -- the majority shareholder of and primary decisionmaker for Lombardfin -- wielded discretionary authority over many of his clients' accounts. Finvest Geneva and Lombardfin, and consequently Tome and Leati, enjoyed a close working relationship evinced by office rental agreements, brokerage contacts, and other business arrangements.

In July, 1980, Tome met Edgar M. Bronfman, Chairman of the Board and Chief Executive Officer of Seagram, when the two flew on the Seagram company plane to a rodeo in Cheyenne, Wyoming. Tome subsequently developed a business relationship with Bronfman and in October, 1980, Tome, acting for Finvest Geneva, agreed to provide Seagram with information and advice about foreign currencies. In the same month, Finvest Geneva agreed to invest and manage ten million dollars for Seagram in various currencies, bonds and notes. Bronfman also opened a personal account at Finvest Geneva, over which he gave Tome discretionary authority.

In August, 1980, Seagram sold its interest in Texas Pacific Oil Company for $2.3 billion. With this cash reserve and a $3 billion line of credit, Seagram began looking for an acquisition candidate. Because of Bronfman's interest in coal as a primary energy source, Seagram focused on companies with significant coal assets, particularly Sante Fe Industries, Amax, St. Joe, and Union Pacific. In late 1980, Tome requested and received form Seagram a briefing on its policies, operations, and financials.

In making acquisition decisions, Bronfman "consider(ed Tome) sort of a European consultant to Seagram generally," 638 F. Supp. at 603, and looked to him for insight into how the European investment community would view an acquisition by Seagram. "Tome seized and actively solicited and nurtured this confidentiality, frequently probing into the internal reasons for Seagram's actions, asking Bronfman 'why?'" 638 F. Supp. at 603. In mid-December, 1980, Bronfman informed Tome that Seagram was looking "very hard" at Santa Fe and sought Tome's advice on the proposed acquisition. This conversation indicated to Judge Pollack that "Tome was looked upon and treated by Bronfman as an insider of Seagram, as he had become." Id. at 604. Tome probed why Seagram was interested in Santa Fe and when Bronfman expected to act. Bronfman testified that he and Tome "didn't just discuss Santa Fe, but companies like Santa Fe," and that he might even have mentioned Seagram's short list of potential acquisition candidates -- Santa Fe, Amax, and St. Joe.

On January 13, 1981, the board of Seagram's parent corporation authorized Seagram to invest up to $150 million in the stock of four companies, without being informed that the companies were Santa Fe, Amax, St. Joe, and Kimberly Clark. On January 28, Seagram decided not to proceed with the acquisition of Santa Fe. Bronfman conveyed this information to Tome by February 6, at the latest. In early February, Seagram also dropped Amax from the potential acquisition list. Bronfman could not remember whether he informed Tome that Amax had been removed from Seagram's acquisition list. According to Bronfman, "almost by a process of elimination, that left St. Joe." By February 25, 1981, Bronfman had decided to make a tender offer for St. Joe.

The price and volume of St. Joe securities trading remained relatively stable during February and March. Moreover, two weeks prior to Seagram's tender offer, Salomon Brothers & Co., a highly respected New York broker-dealer, executed sales of a large block of St. Joe stock on behalf of an institutional client. Apparently, Seagram's intentions were a well-kept secret.

Bronfman and Tome continued to see each other socially: They participated in a "joint venture" as investors in the Broadway musical "Sophisticated Ladies;" Bronfman, Tome and their wives spent vacations together in France, Virginia, and Mexico; and they talked frequently by telephone. On March 9, 1981, Tome called Bronfman in New York and invited him to dinner the following evening. Bronfman declined Tome's dinner invitation, stating that he would be in Montreal for a directors' meeting.

The next morning, March 10, 1981, Tome feverishly placed orders for St. Joe securities. Through BSI, Tome purchased 1,055 options*fn2 on St. Joe common stock on behalf of the Panamanian corporations. Tome bought an additional 3,000 shares of St. Joe stock through Finvest Geneva on behalf of Finvest Underwriters and Dealers Corp. Tome later sold 2,000 of these shares, reaping an overnight profit of $34,000 and exchanged the other 1,000 shares of St. Joe stock for 1,200 shares of Fluor Corporation. The trading profits were deposited in BSI's account at Irving Trust. On the ...


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