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In re Drucker

Supreme Court of New York, Second Department

July 17, 2013

In the Matter of Mitchell S. Drucker, an attorney and counselor-at-law. Grievance Committee for the Tenth Judicial District, petitioner; Mitchell S. Drucker, respondent. (Attorney Registration No. 2683050)

DISCIPLINARY PROCEEDING instituted by the Grievance Committee for the Tenth Judicial District. The respondent was admitted to the Bar at a term of the Appellate Division of the Supreme Court in the Second Judicial Department on June 7, 1995. By decision and order on motion of this Court dated December 7, 2010, the Grievance Committee for the Tenth Judicial District was authorized to institute and prosecute a disciplinary proceeding against the respondent based upon the acts of professional misconduct set forth in a verified petition dated May 18, 2010, the respondent was barred from relitigating any of the factual issues raised therein, based upon the doctrine of collateral estoppel, and the matter was referred to the Honorable Geoffrey J. O'Connell, as Special Referee, to hear and report solely on the issue of mitigation. By further decision and order on motion of this Court dated September 9, 2011, the respondent's motion to dismiss the petition was denied. By the same decision and order on motion, the cross motion of the Grievance Committee for the Tenth Judicial District to dismiss certain of the respondent's affirmative defenses was denied, without prejudice to seeking relief before the Special Referee.

Robert A. Green, Hauppauge, N.Y. (Michael Fuchs of counsel), for petitioner.

Long, Tuminello, Besso, Seligman, Werner, Sullivan & Aulivola, LLP (David H. Besso and Michelle Aulivola of counsel), for respondent.

REINALDO E. RIVERA, J.P., PETER B. SKELOS, MARK C. DILLON, DANIEL D. ANGIOLILLO, RUTH C. BALKIN, JJ.

OPINION & ORDER

PER CURIAM.

The Grievance Committee for the Tenth Judicial District served the respondent with a verified petition dated May 18, 2010, containing two charges of professional misconduct predicated upon the jury verdict rendered on December 3, 2007, in Securities and Exchange Commission v Drucker (Docket No. 06 Civ. 1644 [SD NY]); the Decision on Relief, filed December 20, 2007, in Securities and Exchange Commission v Drucker (528 F.Supp.2d 450 [SD NY]); the Final Judgment against the respondent, dated December 21, 2007, in Securities and Exchange Commission v Drucker (Docket No. 06 Civ. 1644 [SD NY]); and the decision of the United States Court of Appeals for the Second Circuit, dated September 21, 2009, in Drucker v Securities and Exchange Commission (346 Fed.Appx 663 [2d Cir]), which affirmed the judgment entered by the District Court in Securities and Exchange Commission v Drucker. Following a hearing, the Special Referee sustained both charges. The Grievance Committee now moves to confirm the Special Referee's report and to impose such discipline as the Court deems appropriate. The respondent, by his attorneys, has submitted an affirmation in opposition to the Grievance Committee's motion and in support of the respondent's request to "limit the sanctions imposed, if any, so as to not preclude the [respondent] from continuing with the practice of law."

Charge one alleges that the respondent engaged in conduct involving dishonesty, deceit, fraud, or misrepresentation, in violation of former Code of Professional Responsibility DR 1-102(a)(4) (22 NYCRR 1200.3[a][4]), as follows:

In or about 2000 and 2001, the respondent was associate general counsel to NBTY, Inc. (hereinafter NBTY), a nutritional supplement company that was publicly traded on NASDAQ. On or about March 2, 2006, the respondent was named as a defendant in Securities and Exchange Commission v Drucker, in the United States District Court for the Southern District of New York, under Docket No. 06 Civ. 1644.

The complaint in the foregoing matter alleged, in sum and substance, that, in or about October 2001, the respondent and his father, Ronald Drucker, engaged in unlawful insider trading by selling their shares of NBTY stock one day before NBTY made public a negative earnings announcement. It was alleged that, in his capacity as associate general counsel to NBTY, the respondent "routinely received sensitive and confidential information about NBTY. [The respondent] owed a duty to keep confidential, and not use for personal gain, any material, non-public information concerning NBTY." At the time of these sales, the respondent was alleged to have been "aware of material, non-public information" concerning NBTY's fourth-quarter earnings.

At the close of the stock market on October 19, 2001, NBTY publicly announced that its fourth-quarter earnings would be lower than expected. On the next trading day, the value of NBTY's shares fell approximately 27%. On October 18, 2001, one day prior to NBTY's public announcement, the respondent placed orders to sell his entire holdings of NBTY stock, consisting of 25, 700 shares. At the same time, the respondent contacted his father, Ronald Drucker, and "tipped him." "Within minutes, " Ronald Drucker sold his entire holdings of NBTY stock. Also at the same time, the respondent "directed the sale" of the entire NBTY holdings of his friend William V. Minerva. By trading in advance of the negative earnings announcement, the respondent, Ronald Drucker, and William V. Minerva avoided losses of approximately $200, 000.

The March 2, 2006, complaint charged the respondent with violating section 17(a) of the Securities Act of 1933 (15 USC § 77q[a]), section 10(b) of the Securities Exchange Act of 1934 (15 USC § 78j[b]), and Securities and Exchange Commission (hereinafter SEC) Rule 10b-5 (17 CFR 240.10b-5). A jury trial commenced in the United States District Court for the Southern District of New York on November 26, 2007. On December 3, 2007, the jury returned a verdict finding that (1) the respondent violated section 17(a) of the Securities Act of 1933 (15 USC § 77q[a]), section 10(b) of the Securities Exchange Act of 1934 (15 USC § 78j[b]), and SEC Rule 10b-5 (17 CFR 240.10b-5), when he sold 25, 700 shares of NBTY stock on October 18, 2001, and October 19, 2001; (2) the respondent violated section 17(a) of the Securities Act of 1933 (15 USC § 77q[a]), section 10(b) of the Securities Exchange Act of 1934 (15 USC § 78j[b]), and SEC Rule 10b-5 (17 CFR 240.10b-5), when he sold 1, 575 shares of NBTY stock for William V. Minerva on October 18, 2001; and (3) the respondent violated section 17(a) of the Securities Act of 1933 (15 USC § 77q[a]), section 10(b) of the Securities Exchange Act of 1934 (15 USC § 78j[b]), and SEC Rule 10b-5 (17 CFR 240.10b-5), as a "tipper."

The District Court (McMahon, J.) thereafter issued a Decision on Relief (528 F.Supp.2d 450 [SD NY]). In that decision, the District Court made several rulings as to the respondent's conduct. With respect to the amount to be disgorged by the respondent, the District Court held that "the jury necessarily found that [the respondent] had obtained inside information about the earnings of NBTY before he began selling his and Minerva's stock on October 18, and before he telephoned his father and directed [him] to sell NBTY stock, also on October 18" (528 F.Supp.2d at 452). With respect to the respondent's liability, the District Court ruled that the respondent "is solely liable for disgorging his entire ill-gotten gain [and] is jointly and severally liable for the amounts to be disgorged" by Ronald Drucker and William V. Minerva (id. at 453). The District Court directed the respondent to disgorge the amount of $197, 243 plus prejudgment interest, and imposed civil penalties in an amount equal to twice the disgorgement amount, to wit, $394, 486 (see id.).

The ruling on the respondent's liability for civil penalties was based, inter alia, on the District Court's finding that the respondent "is a lawyer who betrayed the trust of his client (who also happened to be his employer) for his own benefit and for the benefit of his father and his best friend" (id. at 452-453). "In addition to betraying the trust of his client/employer, " the District Court found that the respondent "failed to cooperate with the NASD investigation... thereby misleading his employer" and that he "committed perjury on the witness stand at the trial of this action" (id. at 453). The District Court issued a permanent injunction against the respondent's "further violation of the securities laws, " as well as his being "an officer and director" (id.). The permanent injunction was based, among other things, on the District Court's finding that the respondent "demonstrated utter indifference to both the law and to his client" (id. at 454).

On or about December 21, 2007, the District Court issued a "Final Judgment Against Defendant Mitchell S. Drucker." The District Court reviewed the history of the litigation, permanently restrained and enjoined the respondent from violating, directly or indirectly, section 17(a) of the Securities Act of 1933 (15 USC § 77q[a]), section 10(b) of the Securities Exchange Act of 1934 (15 USC § 78j[b]), and SEC Rule 10b-5 (17 CFR 240.10b-5), prohibited the respondent from acting as an officer or director of any issuer that has a class of securities registered pursuant to section 12 of the Securities Exchange Act of 1934 (15 USC § 781) or that is required to file reports pursuant to Section 15(d) of the Securities Exchange Act of 1934 (15 USC § 78o[d]). The District Court ordered the respondent to disgorge the amount of $201, 146.34, which included prejudgment interest, found that the respondent was jointly and severally liable with William V. Minerva, and ordered the respondent to disgorge the amount of $11, 577.11, which included prejudgment interest. In addition, the District Court found that the respondent was jointly and severally liable with Ronald Drucker, and ordered the respondent to disgorge the ...


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