The U.S. Securities and Exchange Commission yesterday filed an insider trading action against the two former top officials of the Maryland Port Administration after a year-long investigation into purchases of Baltimore Bancorp stock prior to the bank's sale.
The SEC alleged that Michael P. Angelos, former executive director of the MPA, illegally reaped more than $36,000 in profits from the sale of Baltimore Bancorp stock after receiving inside tips from G. Gregory Russell, the MPA deputy director, who was a member of the bank's board of directors.
While not admitting guilt, Mr. Angelos agreed to settle the case for $61,762, which included the $36,650 in illegal profits plus prejudgment interest and a civil penalty, according to papers filed with the complaint in U.S. District Court here.
The SEC said that Mr. Russell has not settled the case. Neither Mr. Angelos nor Mr. Russell could be reached for comment.
The civil investigation focused on Mr. Angelos' purchase of Baltimore Bancorp stock on two occasions while the bank's management was actively seeking bids that ultimately resulted in its $346 million acquisition by New Jersey-based First Fidelity Bancorp.
A $50,000 check Mr. Russell wrote to cover Mr. Angelos' stock purchase reportedly was a focal point of the federal investigation, which came to light last March.
Mr. Angelos resigned the $105,000 state job he had held for four years, even while denying wrongdoing.
Word of the check prompted speculation that the money came not from Mr. Russell, an $85,000-a-year state official, but from a third party.
The SEC would not comment on that possibility yesterday nor would it say whether its probe was continuing.
The complaint alleged that Mr. Russell, in communicating confidential material to Mr. Angelos, "knew and recklessly disregarded the likelihood that Angelos would purchase Baltimore Bancorp securities."
Likewise, it said that Mr. Angelos, in buying the stock, knowingly disregarded the fact that Mr. Russell's actions were illegal.
The civil ac- tion is one of roughly 40 insider trading actions filed nationwide during the past year by the agency, which regulates securities. And SEC officials said yesterday the insider trading was especially blatant.
"We've had cases involving secretaries and others who just happened to hear about something," Daniel A. Nathan, assistant director of the division of enforcement of the SEC, said.
"But this was somebody [Mr. Russell] who sat on the board of directors and had the most immediate knowledge of material developments in the merger of the company. Angelos was aware that the information was disclosed to him in breach of duty."
James P. Ulwick, attorney for the former MPA director, said Mr. Angelos still denies that he received confidential information from Mr. Russell or anyone else inside the bank. He said Mr. Angelos, now a private consultant, agreed to settle the case to avoid the legal costs of fighting a lengthy federal court case.
According to Mr. Ulwick, Mr. Angelos had traded Baltimore Bancorp stock starting in mid-1992, some months after dissident shareholders ousted the management of the teetering bank and embarked on a turnaround.
"His position was and continues to be that he invested in Baltimore Bancorp stock because he knew people were interested in buying the bank," Mr. Ulwick said. "The bank was clearly for sale during that period of time."
The SEC complaint, however, details a timetable that it says shows a pattern of insider trading. According to the agency, Baltimore Bancorp's directors, in a meeting attended by Mr. Russell on Oct. 13, 1993, decided to sell the bank and retained Alex. Brown Inc. to solicit prospective buyers.
At that time, directors were admonished that the undertaking was confidential and were advised they could not buy or sell bank stock until the process of soliciting a buyer was completed.
In December 1993, Mr. Russell and other board members were told that preliminary bids from prospective buyers were due on Jan. 12, 1994. The SEC complaint said that Mr. Russell, who advised Mr. Angelos about investing and had limited authority to trade on behalf of his boss, contacted Mr. Angelos' broker at Wheat First Securities on Jan. 7 or 8, 1994, to inquire about the status of Mr. Angelos' IRA account.
According to the complaint, Mr. Russell also informed Mr. Angelos on or prior to Jan. 10 that the bank was seeking bids. Mr. Angelos placed an order Jan. 10 to purchase 2,000 shares of Baltimore Bancorp for his IRA, his only brokerage account at the time. The shares were purchased at $14.125.
On Jan. 12, Mr. Russell learned that Alex. Brown had received four preliminary bids from institutions expressing an interest in acquiring Baltimore Bancorp. A day later, according to the SEC complaint, Mr. Angelos contacted his broker and told him that Baltimore Bancorp, which had closed at just under $14 a share on Jan. 12, might close as high as $17 by the end of trading that day.
The SEC complaint said Mr. Angelos instructed the broker to open a cash account and to purchase $100,000 worth of stock, or 6,600 shares at $15.25. Over the next two days, after a news report that the company was "mulling a $21 per share bid" from Mellon Bancorp, the company's stock shot up to $17.375 a share on extremely heavy volume.
In April, Mr. Angelos sold his 8,600 shares for $19.25 each.
The SEC complaint also said that Mr. Angelos did not forward payment on time for the Jan. 13 trade, and roughly a week later, the broker called Mr. Russell regarding Mr. Angelos' overdue account.
Mr. Russell asked him to convert the account to a margin account, under which half the stock purchase was made on credit. He then provided a $50,000 check to cover the Angelos trade, according to the SEC.
"The broker couldn't reach Mr. Angelos when the time came to pay up on the trade so he called Mr. Russell," Mr. Ulwick explained yesterday. "Mr. Russell, to help out his friend, told him, 'Don't worry, I'll take care of it,' and loaned him the money without even talking about it."
Regarding the timing of the stock purchases, Mr. Ulwick said:
"It's an unfortunate fact that the dates coincided with the dates that something was about to happen with the bank."
Pub Date: 3/21/96