The Court does not credit Unifund's explanation for the
trades. Ralph Audi stated that he was required to further
collateralize a line of credit at his bank, and chose to do so
by purchasing Unifund common stock merely because that stock
"came to mind." Affidavit of Ralph Audi, dated February 21, at
¶¶ 19-21. Although Mr. Audi contends that Rorer had been a
speculated takeover target since August, id. at ¶ 16, he was
also advised in December by his broker that Rorer was priced
too high and was not a good investment. Id. at ¶ 18. Unifund
does have a history of buying stocks on takeover rumors, yet it
did not purchase this stock in August when these rumors
allegedly first arose; instead it did so shortly after it had
been advised not to buy by its broker.
At this stage, the SEC is required to demonstrate a
prima facie case, which may be based either on direct evidence
or credible circumstantial evidence.*fn6 The sudden and timely
interest these defendants had in Rorer securities is suspicious
and has not been adequately explained. The suspicious timing
and speculative nature of Unifund's investment further supports
the inference that it was acting on material non-public
information, as does its connection with Banque Audi and its
potential relationship with Rhone.
In the case of Tamanaco, which executed its trades through
Raymond James, the admissions of Mr. Peyer combined with the
highly suspicious trading pattern support a finding that
Tamanaco also acted on material non-public information when it
made a large, speculative investment in Rorer just prior to
the public announcement of a potential merger.
Based on the foregoing, this Court concludes that the SEC
has shown a strong prima facie case of violations of Rule 10b-5
with respect to both of these defendants.
b) Likelihood of Repetition
Evidence of activity in the securities markets can weigh
strongly in support of a finding that an opportunity for
additional violations exists, and that there is a reasonable
likelihood of future violations. SEC v. Universal Major
Industries Corp., 546 F.2d 1044, 1048 (2d Cir. 1976), cert.
denied, 434 U.S. 834, 98 S.Ct. 120, 54 L.Ed.2d 95 (1977)
("U.M.I."); see also S.E.C. v. Champion Sports Management,
599 F. Supp. 527, 534 (S.D.N.Y. 1984) (relevant factors to be
considered include (1) likelihood of future violations, (2)
degree of scienter involved, (3) sincerity of defendant's
assurances against future violations, (4) isolated or recurrent
nature of infraction, (5) defendant's recognition of wrongful
nature of his conduct, and (6) likelihood, because of
defendant's professional occupation, that future violations
In that U.M.I., defendant Homans was general counsel of
defendant Universal Major Industries ("U.M.I."), a petroleum
exploration operation which was privately placing debentures in
order to raise capital. The S.E.C. obtained a permanent
injunction against violations of securities laws, and Homans
appealed. He argued, inter alia, that there could be no
"reasonable likelihood that the wrong would be repeated,"
because he had "ceased his association with U.M.I. over three
years ago and . . . the SEC has not even suspected him of
illegal activity since that time." Id. The Second Circuit
rejected this argument and upheld this Court's exercise of
discretion under those circumstances, despite his dissociation
from U.M.I. three years prior.
Here, the potential for future violations is even stronger.
Unifund and Tamanaco are in the business of regularly trading
securities. Moreover, the record shows that Unifund has been
an active participant in the U.S. securities market.*fn7
Unlike in U.M.I., there has been no suggestion by either of
these parties that they intend to
cease their stock trading activities. A fortiori, the
opportunity for these active stock-trading companies to engage
in practices resembling those at issue here is clearly present.
This Court finds this situation to be sufficiently dangerous to
warrant the imposition of an injunction as to both these
For the aforementioned reasons, plaintiff's motion for a
preliminary injunction, freeze order and an order preventing
the destruction or alteration of documents is granted, while
the motions of Unifund and Tamanaco to dismiss for lack of
personal jurisdiction and for insufficiency of process and
insufficiency of service of process are denied.