Three owners of a Brooklyn, NY, direct mail firm are among those the Securities and Exchange Commission has charged with insider trading in connection with IBM Corp.'s 1995 takeover of Lotus Development Corp.
The case, filed in the U. S. District Court for the Southern District of New York, alleges that James Ribellino, CEO of Omni Mail Inc., bought call option contracts on Lotus stock after receiving an illegal tip that the company was about to be bought by IBM. The SEC also alleges that he allowed Omni Mail co-owners Ralph Serpe and Gerald Wells to buy Lotus options through his brokerage account. The three men made a one-day trading profit of $82,875 on an initial investment of $8,250, the government agency said.
Ribellino was not available for comment. His attorney, Anthony Mansfield of New York, would not speak about ongoing litigation.
Call options give their holder the right to purchase a company's stock at a predetermined price. Investors who purchase call options — which are considerably less expensive than their underlying shares — expect the stock's price to increase before the option expires. Shares of Lotus stock immediately jumped 89 percent after IBM publicly announced its intent to buy the software company.
Bill Morse, the SEC's Boston branch chief, said individuals named in the complaint are required to file a response within 20 days of being served. The case then will proceed to a discovery phase, during which both sides will be able to take depositions. The SEC filed the complaint May 26.
Ribellino, Serpe and Wells are among 25 people charged in the case. The SEC claims that Lorraine Cassano, a former IBM secretary, came across confidential information indicating that the computing giant planned to begin a hostile takeover of Lotus. The SEC said this information then spread by word of mouth to other people named in the complaint.
IBM fired Cassano after she was subpoenaed in connection with the investigation. She, her husband and two others have since arranged financial settlements with the SEC. The case remains pending against the remaining 21 defendants.
The SEC said Serpe and Wells arranged for Ribellino to purchase Lotus call options for them after a broker refused to accept their trades because Serpe did not have the authority to make the risky investment and Wells had no account. The SEC said Wells and Serpe had never invested in options prior to the purchase, and that Ribellino was “an infrequent trader.”
Morse declined to specify Ribellino's brokerage, but he said the trading did not take place online.
Others named in the complaint include a teacher, a bank executive, an attorney, a gynecologist, a stockbroker and an engineer. Most of the individuals live in either New York or New Jersey. The SEC said the defendants' illegal trading garnered them a total more than $1.3 million in profits.