The opinion of the court was delivered by: Robert W. Sweet, U.S.D.J.
After obtaining an ex parte temporary restraining order freezing
the assets in brokerage accounts held by the individual defendants, an
order for sworn accounting from each defendant and expedited discovery on
May 10, 2001, the SEC has now moved (1) for a preliminary injunction
enjoining the defendants from committing future violations of the
federal securities laws; and (2) to continue the asset freeze until
Defendants A. Duclaud, Jose Antonio Duclaud Gonzalez de Castilla, ("J.
Duclaud"), Pablo Velazquez Baranda ("Velazquez"), Maricruz Lozano Ledezma
("Lozano"),*fn1 Elvira Baranda Garcia ("E. Baranda"), Rodrigo Igartua
Baranda ("R. Igartua"), non-party witness Ignacio Guerrero ("Guerrero"),
*fn2 and his company, defendant Banrise Ltd. BVI ("Banrise"), opposed
For the reasons set forth below, the motion to continue the temporary
restraining order freezing the defendants' assets and accounts, as
modified in open court on June 8, 2001, is granted in part. The freeze
shall continue through the trial, or until the resolution of this action
by agreement of the parties, against all defendants except Pablo
Velazquez, Maricruz Lozano Ledezma, and Elvira Baranda Garcia, for whom
it shall be lifted. The motion for a preliminary injunction restraining
future violations of the securities laws is denied as to all defendants.
The Parties Plaintiff Securities and Exchange Commission ("SEC") is
a governmental agency charged with the task of ensuring compliance with
federal securities laws.
Defendant Alejandro Duclaud is a Mexican citizen and resident married
to defendant Ana Igartua Baranda de Duclaud ("A. Igartua"). At all times
relevant to this action, he was a partner in the Mexico City law firm of
Franck, Galicia, Duclaud and Robles, S.C. ("Franck, Galicia"). Franck,
Galicia represents prominent Latin American investor, Carlos Slim Helu
("Slim"), and his companies, including Grupo Sanborns, which acquired
CompUSA in a tender offer publicly announced on January 24, 2000. As a
member of the Regulations Committee of the Mexican stock exchange since
1996, Duclaud participated in the drafting and enactment of regulations
for the exchange, including those relating to insider trading. Alejandro
Duclaud has resigned from Franck, Galicia and had his name removed from
their firm name on May 21, 2001. He resigned his position at the Mexican
stock exchange Regulations Committee on May 25, 2001, and is currently
Alejandro Duclaud is the settlor, or creator, of nominal defendant
Anushka Trust. The Anushka Trust is governed by English law and
beneficially owns all the stock of Anushka Holdings, Ltd.
The Anushka Trust makes equity investments through an account at
PaineWebber, Inc. ("PaineWebber"), including the CompUSA trades at issue
in this action.
Defendant Jose Antonio Duclaud, like his brother, Alejandro Duclaud, is
a Mexican citizen and resident who practices law. Jose Antonio Duclaud's
law offices are located in Cancun.
Jose Antonio Duclaud is the settlor, or creator, of nominal defendant
Caribbean Legal Trust, which beneficially owns all the stock in Caribbean
Legal Holdings, Ltd. ("Caribbean Legal Holdings"). The Carribean Legal
Trust makes equity investments through an account at PaineWebber, including
the CompUSA trades at issue in this case.
Defendant Pablo Velazquez Baranda is a Mexican citizen and resident.
His cousin is married to Alejandro Duclaud.
Velazquez traded CompUSA stock through an account at Lehman Brothers,
which he held in his own name jointly with his wife, defendant Maricruz
Lozano Ledzma, and his mother, defendant Elvira Baranda Garcia.
Defendant Rodrigo Igartua Baranda, a Mexican citizen and resident, is a
professional financial advisor who acts as the Chairman and Chief
Executive Officer of SB Asesores S.A. de C.V. ("S.B. Asesores"), and is
the president of defendant Antares Holdings Investment, Ltd.
("Antares"), an off-shore company established in order to facilitate his
investments. Rodrigo Igartua Baranda is a cousin of defendant Pablo
Velazquez Baranda, and is Alejandro Duclaud's brother-in-law. Both
Alejandro and Jose Antonio Duclaud are Igartua's clients, and Alejandro
and Rodrigo are involved in a real estate project together in Acapulco.
Three of Igartua's brokerage accounts have been frozen in this action,
including a personal account held at Lehman Brothers, the Antares
PaineWebber account, and a PaineWebber account held jointly with his
mother, defendant Martha Baranda de Igartua ("M. Baranda"), and his
sister, defendant Ana Igartua Baranda de Duclaud ("A. Igartua").
Non-party witness Ignacio Guerrero is an Executive Director of Banco
Internacionale ("BITAL"), one of the largest banks in Mexico. He is also
the beneficial owner of defendant Banrise Limited BVI, an entity formed
under the laws of Ireland in the mid-1990's, and reorganized under the
law of the British Virgin Islands in the summer of 1999, which trades
through Beta Capital Management, L.P. ("Beta Capital"), in Miami,
Florida. Guerrero is a long-time friend of Alejandro Duclaud and Rodrigo
The facts presented by the parties are set forth in the complaint,
affidavits of the parties, and discovery materials disclosed thus far.
The amount of shares traded, amount per share, dates of trades, and
profits are undisputed.*fn3 However, the SEC, relying on the theory that
an unlawful tip from Alejandro Duclaud regarding Grupo Sanborn's
impending tender offer for CompUSA prompted the defendants' purchases of
CompUSA stock, has contested the defendants' assertions that their
lucrative trades were solely the result of their own research, financial
advisors' recommendations, and good fortune. The following constitute the
Court's factual findings.
On September 10, 1999, Carlos Slim Helo filed a Schedule 13G indicating
that he, his family, and their affiliated entities*fn4 had acquired
14.1% of the outstanding shares of stock in CompUSA.
(Compl. ¶ 4; Beerbower Aff. Ex. P.)
Slim, a billionaire Mexican businessman whose companies account for
almost half of Mexico's stock index, has received international attention
as a "shrewd bargain hunter" (Beerbower Aff. Ex. G) with a reputation for
"snapping up distressed companies at discount prices" (Beerbower Aff.
Ex. H), and earning astronomical profits. The phenomenon of investors
"following" Slim was well established in Mexico by 1999. (See, e.g.,
Tomback Decl. Ex. Q (Michael S. Serrill, Mexican Prodigy, Time
International, June 3, 1996).)*fn5
Ignacio Guerrero and his business partner, non-party Gustavo Ortega
("Ortega"), aver that Slim's 13G filing prompted them to begin reviewing
analyst reports, news reports, and other financial information concerning
the desirability of selecting CompUSA as an investment vehicle for
themselves and for their clients. (Ortega Decl. ¶¶ 2,3; Guerrero Tr.
170:16-21, 171:14-172:21, 173:21-174:23.)*fn6
In the next two months, executives from Grupo Sanborns and CompUSA
met several times in Mexico City and in Dallas, Texas to discuss Grupo
Sanborns's interest in CompUSA and the possibility of establishing
commercial arrangements between the two companies and their affiliates.
(Compl. ¶¶ 15-17.)
Slim filed a Schedule 13D on November 22, 1999, reflecting that he had
increased his ownership of CompUSA to 14.8%, and notifying the public
of the possibility that he might consider participating in transactions
affecting the control of CompUSA.
(Compl. ¶ 22; Beerbower Aff. Ex. O at 7 ("Item 4").) Again, Robles
was listed as the Franck, Galicia attorney for Grupo Sanborns, but
testified that his only involvement was to review the 13D before it was
filed. CompUSA stock closed the day at $5.875 per share. (Compl. ¶
The press reacted positively about the outlook for CompUSA in light
of Slim's increasingly serious interest in it.
(See, e.g. Tomback Decl. Ex. S (Bloomberg, Mexico's Sanborns Boosts
CompUSA Stake to 14.8%, May Buy More, Nov. 23, 1999).)
Meanwhile, Guerrero had success in another "follow Slim" investment
venture. Guerrero had purchased shares in Prodigy after Slim took the
company public in early 1999, and then sold for a $600,000 profit after
the company announced plans for a partial acquisition in November of
1999. (Guerrero Tr. 98:20-99:24.)
After Slim's 13D filing, Grupo Sanborns representatives contacted
CompUSA representatives by telephone to discuss Grupo Sanborns's interest
in acquiring CompUSA. (Compl. ¶ 23, 24.) Grupo Sanborns increased
its valuation of CompUSA from $7.00, to $7.50, to $8.00 per share in the
ensuing weeks, which CompUSA President and Chief Executive Officer James
F. Halpin ("Halpin") rejected as inadequate. (Compl. ¶¶ 23, 24.)
Executives from both companies met again in Dallas on December 16, 1999
but could not reach agreement, and continued confidential discussions
during the week of January 3, 2000. (Compl. ¶¶ 25, 26.)
Ignacio Guerrero met with his friend Rodrigo Igartua on January 5, 2000
to discuss the possibility of Guerrero becoming involved in a real estate
venture in Acapulco that Igartua had been pursuing with Alejandro
Duclaud. (Tomback Decl. Ex. T (Guerrero Tr. 152:5-17; Igartua Tr.
177:21-179:5).) According to both men, the subject of CompUSA arose in
connection with Carlos Slim's recent 13D filing. (Igartua Tr. 153:14-25,
Guerrero agreed with Igartua's assessment that CompUSA looked like
a good investment, particularly given Slim's involvement.
(Guerrero Tr. 90:8-90:19; Igartua Tr. 177:21-178:7.)
On January 6, 2000, Igartua's Antares bought 14,300 shares of CompUSA
stock at $5.125 per share, for a total cost of $73,864, and 10,700 shares
at $5.1875 per share, for a total of $55,934. The same day, Guerrero's
Banrise bought 300,000 CompUSA shares at $5.2127 per share for a total
cost of $1,563,817.00, through its account at Beta Capital Management,
which clears its trades through Bear Stearns. The purchase of 325,000
shares by Igartua and Guerrero through their corporate entities*fn7
accounted for 27% of the 1,192,000 total volume of CompUSA shares sold
that day. (Compl. ¶¶ 26, 34, 35.)
The next day, Igartua's Antares bought an additional 30,000 shares at
$5.0625 per share, for a total cost of $153,079.00. (Compl. ¶ 34.)
During the week of January 10, 2000, Grupo Sanborns increased its
tentative valuation of CompUSA to $9.00 per share in discussions with
CompUSA executives. (Compl. ¶ 27.) CompUSA retained Credit Suisse
First Boston and authorized it to negotiate with Grupo Sanborns about
their proposed valuation. (Compl. ¶ 28, 29.)
During this same period, Igartua again spoke to Guerrero about
CompUSA. (Igartua Tr. at 187-88).
Although Slim's Schedule 13 filings had prompted rumors of a takeover
during the prior months, the likelihood of a Grupo Sanborns tender offer
for CompUSA was inadvertently made public on January 18, 2000, when
CompUSA CEO Halpin was asked about the possible deal during his testimony
in a Dallas County, Texas courtroom. COC Services, Inc. ("COC"), had
filed suit against CompUSA, Halpin, and Slim, alleging that Slim used COC
to gain information about CompUSA and then used it, in collusion with
Halpin, to acquire CompUSA and deprive COC of its prospective contractual
right to open CompUSA
stores in Mexico; COC also sought a preliminary
injunction barring CompUSA from doing business in Mexico. See, e.g.,
Michael Burger, COC Services v. CompUSA, et al., The American Lawyer,
Vol. XXII, No. 4 (April 2000). When asked on cross examination whether he
was aware that Carlos Slim was planning to acquire CompUSA, Halpin
I can't comment on that. Can I talk to Your Honor for a
second? . . . There is a certain disclosure that I can't
do as CEO of a public company in an open forum. I would
be happy to talk to the attorneys and the Judge in
private, but I can't — I can't violate my fiduciary
responsibility to CompUSA.
(Beerbower Supp. Ex. 13 at 182-83 (COC Services, Ltd. v. CompUSA, Inc.,
No. 00-00023-b, Jan. 18, 2000).) An off-the-record conversation ensued.
(Id. at 183-84.)
Back in the confidential negotiations, by January 19, 2000, Grupo
Sanborns had indicated its willingness to value CompUSA at $10.10 per
share, a proposal that Credit Suisse agreed to share with the CompUSA
board. (Compl. ¶ 30.) That day, Igartua's Antares bought 20,000
shares of CompUSA stock at $5.375 per share, for a total cost of
$108,504. Guerrero's Banrise bought 193,200 shares at $5.5625 per share
for a total cost of $1,053,214.00. After discussing prospects for CompUSA
with Igartua and Alejandro Duclaud, Jose Antonio Duclaud authorized
Igartua to purchase 50,000 shares of CompUSA stock at $5.4375 per share
through the PaineWebber account of Caribbean Legal Trust, for a total
cost of $271,875. (Beerbower Aff. Exs. Q at 197-76, R at 146-48,
Finally, Rodrigo Igartua bought 10,000 shares of CompUSA common
stock through his Lehman Brothers account at $5.50 per share, for a
total cost of $55,164. (Compl. ¶¶ 34, 35, 36, 37.)
Collectively, the defendants' purchase of 273,000 shares accounted for
approximately 25% of the total volume of CompUSA shares (1,102,000) traded
on January 19, 2000. (Compl. ¶ 30.)
Although Alejandro Duclaud had authorized Rodrigo Igartua to purchase
180,000 CompUSA shares for him on January 19, 2000 through the Anushka
Holdings account at PaineWebber, the trade was not executed until the
next day.*fn8 Specifically, Anushka Trust bought 50,000 shares at $5.50
per share, for a cost of $275,000, 26,100 shares at $5.875 per share for a
cost of $153,337, and 38,100 shares at $5.5625 per share for a cost of
$211,931. (Compl. ¶ 34, 38.) In order to satisfy Duclaud's total
order, Igartua allocated to Duclaud 30,000 shares Igartua had previously
purchased through Antares on January 7, 2000. (Duclaud Decl. ¶¶ 9,
10.) In addition, Igartua executed a purchase of 20,000 CompUSA shares at
$5.5625 per share, or $112,154, through the PaineWebber account he held
jointly with Ana, his sister, and Martha Baranda, his mother.
On the morning of January 20, 2000, Alejandro Duclaud and his wife Ana
left Mexico city for a planned long weekend in New York with another
couple. (Duclaud Decl.¶ 10.) That afternoon, a representative of
Grupo Sanborns contacted Robles, informed him for the first time that the
company's New York counsel, Cleary, Gottlieb, Steen & Hamilton ("Cleary,
Gottlieb") had prepared a draft acquisition agreement with CompUSA, and
asked him to fly to New York to work on the proposed transaction.
(Compl. ¶ 31; Tomback Decl. Ex. W at AD 10254; A. Duclaud Br. at 7
The volume of CompUSA traded on January 20, 2000 rose to 2,584,200
— only 134,200 of which was attributable to the defendants —