Seven people, including two former employees of the Grumman Corp., who allegedly made illegal trades based on insider information while the company was in merger negotiations with Bethesda-based Martin Marietta Corp., have agreed to pay nearly $300,000 to settle a complaint filed by the Securities and Exchange Commission.
The complaint, filed Wednesday in U.S. District Court for the Southern District of New York, claims Grumman employees Nicholas Croce and his brother, Frank, and the other five defendants who were not Grumman employees used and passed information to a handful of family members and friends who made illegal trades on the company's stock. In total, the suit said, the defendants and the other individuals made more than $643,914 on their trades.
Without admitting or denying the SEC's allegations, the defendants consented to the complaint and agreed to pay a final judgment of $295,214, which represents disgorgement and civil penalties, the agency said.
The SEC alleges that the illegal trading began shortly before March 7, 1994, when the Bethpage, N.Y.,-based Grumman announced plans to merge with defense contractor Martin Marietta Corp.
On Feb. 23, Grumman's board of directors met to consider Martin Marietta's $55-per-share offer and agreed to pursue negotiations with the company, according to the suit. At that time Grumman's stock was trading at $37 a share.
It was then that due diligence meetings between the two companies began, and Nicholas Croce was asked by Grumman's senior vice president for strategic and technology planning to perform an analysis of the mix of the company's products with those of several other companies, including Martin Marietta.
Two days later, Mr. Croce was told by Grumman's chief financial officer that the company was serious about doing a deal with Martin Marietta.
Despite signing a confidentiality agreement, Mr. Croce passed information to his brother, Frank, who in turn passed the news to his cousin, Frank Sanitate.
"Frank Croce also knew or recklessly disregarded the fact that he owed Grumman a fiduciary duty to maintain in confidence the information he obtained about the possible merger involving Grumman," the suit stated.
The information was passed to a number of other friends, most of whom were involved in manufacturing and selling apparel.
The defendants and their friends wasted little time making trades after they received the information, the suit states.
Mr. Sanitate, for instance, was told on Feb. 27 of the merger and immediately instructed his broker to purchase Grumman common stock for his account on Monday, according to the suit. Following the March 7 merger announcement, Mr. Sanitate jTC realized a $103,763 in profits, the suit said.
Martin Marietta lost out to Northrop Corp., which formed Northrop Grumman Corp. 17 months ago, and Martin Marietta later merged with Lockheed Corp., forming Lockheed Martin Corp.