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June 27, 2001


The opinion of the court was delivered by: Robert W. Sweet, U.S.D.J.

  O P I N I O N

In this action, plaintiff Securities and Exchange Commission ("SEC") alleges that defendant Alejandro Duclaud Gonzalez de Castilla ("A. Duclaud"), received and passed to various friends and relatives in Mexico inside information pertaining to a January 2000 tender offer for CompUSA, Inc. ("CompUSA") that collectively yielded them millions of dollars.

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 trial.

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 the motion.

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 unemployed.

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 Igartua.

Findings of Fact

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.)

(Compl. ¶ 14.)

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. ¶ 22).

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, 161:18-163:8.)

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 testified:

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, 156-59.)

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 n. 5.)

The volume of CompUSA traded on January 20, 2000 rose to 2,584,200 — only 134,200 of which was attributable to the defendants — more ...

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