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ARJUN SEKHRI, et al. Defendants.

The opinion of the court was delivered by: ROBERT PATTERSON, Senior District Judge


In this action brought against Arjun Sekhri and others, the Securities and Exchange Commission ("SEC") alleges violations of Section 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3. The SEC moves for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure ("Fed.R. Civ. P.") against defendant Amolak Sehgal ("Sehgal"). Sehgal is the father-in-law of Arjun Sekhri ("Sekhri"), an employee of Salomon Brothers ("Salomon") who pled guilty in this Court on March 14, 2000 to engaging in an insider trading scheme involving the common stock or stock options of MCI Communications Corp. ("MCI"), Carson Pirie Scott & Co., Inc. ("CPS"), Southern New England Telecommunications Corp. ("SNET"), and others in violation of Section 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3.

  I. Background

  The SEC's case rests upon 1) the plea allocution of Sekhri in his criminal case, 2) the timing of phone calls between Sekhri's home and Sehgal's home and the securities transactions of Sehgal, and 3) money transfers in and out of Sehgal's account. On March 14, 2000, Sekhri pled guilty to an information filed in federal district court charging the crimes of conspiracy to commit securities fraud, securities fraud (15 U.S.C. §§ 17j (b), 78ff and 17 C.F.R. § 240.10b-5) and fraud in connection with a tender offer (15 U.S.C. §§ 78n(e), 78ff and 17 C.F.R. § 240.14e-3(a)). (Second Declaration of Paul A. Gumagay, Ex. A, Information.) The conspiracy count charged inter alia that during the period July 29, 1996 to January 21, 1998, Sekhri was employed by Salomon (id. at ¶ 1), that Salomon had as clients, SNET, Proffitt's Inc., and WorldCom, each of whom engaged in mergers or tender offers with, respectively, SBC Communications, CPS and MCI (id. at ¶ 21). The information further alleges that during that period Sekhri passed confidential information about the mergers and tender offer to Fuad Dow, Co-Conspirator I,*fn1 Co-Conspirator II, and Co-Conspirator III. (Id. at ¶ 38.) The second count alleged securities fraud in violation of Rule 10b-5 in connection with the purchase and sale of securities in or issued by inter alia MCI, CPS, and SNET. (Id. at ¶¶ 70-71.) The third count of the information alleged that Sekhri purchased and sold securities and options which were sought by WorldCom without publicly disclosing the information and its source and before it became public that WorldCom was commencing a tender offer for MCI. (Id. at ¶¶ 72-73.)

  Sekhri acknowledged that he was guilty of all three counts and allocuted as follows:
From July 1996 to January 1998, I was employed as an associate at Salomon Smith Barney, Inc. and had access to confidential market-sensitive inside information about pending business transactions, including mergers. During that period I unlawfully disclosed this confidential information to Fuad Dow, Sherid Kapoor, Martin Thifault and others. In connection with that information, I am aware that these individuals traded on their accounts and I shared in a portion of the proceeds received by Mr. Dow.
(Second Declaration of Paul A. Gumagay, Ex. B, Tr. Hr'g 3/14/2000 at 20 [hereinafter Plea Hr'g].)

  The case of the SEC against Sehgal is based on the timing of Sehgal's purchases of stocks or options in companies which were participants in three business transactions in which Salomon acted as financial advisor and on the telephone records of calls made in close proximity to Sehgal's purchases. The first transaction in question occurred shortly before WorldCom's announcement of a tender offer for MCI on October 1, 1997. Salomon was a financial advisor to WorldCom and Sekhri was a member of the deal team. (Pl.'s 56.1 Stmt.*fn2 at ¶ 23.) The price of MCI's stock rose almost six dollars a share following the October announcement. (Id.)

  On the evening of September 16, 1997, two weeks prior to the October 1st announcement, four phone calls were exchanged between Sehgal's home and Sekhri's home. (Id. at ¶ 14.) The next day, on September 17, 1997, Sehgal and his wife opened a brokerage account at A.G. Edwards. (Id. at ¶ 15.) On the evening of September 18, 1997, three phone calls were exchanged between the Sehgal and Sekhri homes. (Id. at ¶ 16.) On September 19, 1997, Sehgal deposited $30,000 of his personal funds and a $120,000 line of credit secured by his personal residence into the new A.G. Edwards account. (Id. at ¶ 17.) Sehgal admitted at his deposition that he moved the funds to the A.G. Edwards account for the purpose of buying MCI shares. (Id.) On September 19th, Sehgal bought 3,000 shares of MCI for $86,815.50. (Id. at ¶ 18.)

  On November 10, 1997, MCI announced that it had accepted an increased bid from WorldCom. (Id. at ¶ 39.) The price of MCI stock increased over four dollars a share following this announcement. (Id.) On November 6, 1997, four days before the announcement, Sehgal made a second purchase of shares in MCI, on margin. (Id. at ¶¶ 37-38.) Just over ten minutes before the purchase of the additional MCI shares, Sehgal's liquor store received a call from a payphone in New York City billed to Sekhri's calling card. (Id. at ¶ 37.) When Sehgal sold his MCI shares on January 27, 1998, he realized profits of $39,361.64 from his September 18th purchase (id. at ¶ 25) and $24,469.81 from his November 6th purchase. (Id. at ¶ 41.)

  The next transactions concern the agreement on October 29, 1997 of Proffitt's, Inc. to acquire CPS. Salomon was a financial adviser to Proffitt's. (Id. at ¶ 34.) On October 19, 1997, ten days prior to announcement of the agreement, Sehgal opened an account at Discover Brokerage. (Id. at ¶ 27.) On October 26, 1997, twelve phone calls were exchanged between the Sekhri and Sehgal home telephones. (Id. at ¶ 28.) On October 27, 1997, Sehgal deposited $2,000 into the Discover brokerage account. (Id. at ¶ 29.) On that same day, five phone calls were exchanged between Sekhri's and Sehgal's home between 7:59 p.m. and 11:03 p.m. (Id.) The following day, October 28, 1997, Sehgal wired $60,000 from an account of his at First Union account to his Discover brokerage account and purchased 3,300 shares of CPS on margin for $123,153.50. (Id. at ¶ 30-31.) On October 29, 1997, the day Proffitt's Inc. announced its agreement to acquire CPS, four phone calls were exchanged between Sekhri's house and Sehgal's store or Sehgal's house. (Id. at ¶¶ 34-35.) On October 30, 1997, the day after the Proffitt's announcement, Sehgal sold 3,300 shares of CPS and made a profit of $24,450.57. (Id. at ¶ 36.)

  The final transaction in question involves the January 5, 1998 announcement of SBC Communications Inc. that it had agreed to merge with SNET. Salomon was a financial adviser to SNET. (Id. at ¶ 45.) On December 29, 1997, two five-minute phone calls were exchanged between the Sekhri and Sehgal homes, one at 5:03 p.m. and one at 9:36 p.m. (Id. at ¶ 42.) On January 2, 1998, Sehgal purchased $18,580.25 worth of shares of SNET on margin. (Id. at ¶ 43.) Immediately following the merger announcement, Sehgal sold his SNET shares realizing profits of $3,585.01. (Id. at ¶ 46.)

  The SEC also points to four money transfers which involved Sehgal during the period in question. First, on September 23, 1997, during the period before the MCI announcement, Sehgal transferred $70,000 from his First Union account to the Swiss bank account of Konrad Ebert. (Id. at ¶ 21.) Konrad Ebert was a friend of Sekhri's father and maintained a brokerage account for Sekhri's father (id.; Def.'s 56.1 Stmt.*fn3 at ¶ 19).

  Second, on October 10, 1997, Sehgal received a $80,545 wire transfer from Gordon W. Cochrane, a defendant in this suit to recover profits made, who also pleaded guilty to one count of conspiracy to commit securities fraud with Sekhri (See United States v. Cochrane, 98 Cr. 740 (S.D.N.Y. July 16, 1998).) (Pl.'s 56.1 Stmt. at ¶ 24; Def.'s 56.1 Stmt. at ¶ 20.)

  Third, on or about November 25, 1997, after Sehgal had profited from his sale of CPS stock, Sehgal issued a check for $15,000 to Lexus of Manhattan (Def.'s 56.1 Stmt. at ¶ 21) as a down payment on a 1998 GS 400 Lexus automobile purchased by the parents of Sekhri, but used by Sekhri. (Pl.'s 56.1 Stmt. at ¶ 40.)

  On January 3, 1998, during the business transaction between SNET and SBC, $54,000 was deposited in First Union account of Sehgal. (Id. at ¶ 44.) The check was drawn from ...

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