SEC CHARGES FORMER REGISTERED REPRESENTATIVE AND HEDGE FUND MANAGER JOHN MANGAN, JR. WITH UNLAWFUL INSIDER TRADING AND UNREGISTERED SALES OF SECURITIES IN CONNECTION WITH COMPUDYNE PIPE OFFERING
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The Commission announced today that it has filed a complaint against
John F. Mangan, Jr. (Mangan) in the U.S..District Court for the
Western District of North Carolina alleging that Mangan committed
unlawful insider trading by short selling securities of CompuDyne
Corporation prior to the public announcement of a private investment
in public equity (PIPE) offering. The complaint also alleges that
Mangan engaged in unregistered sales of securities. At the time of the
relevant conduct, Mangan was a registered representative of Friedman,
Billings, Ramsey & Co., Inc. (FBR), a registered broker-dealer and the
placement agent for the PIPE offering. Mangan executed his alleged
illegal trades through the account of HLM Securities, LLC (HLM), which
was an account of his business partner, Hugh L. McColl, III (McColl
III).
The Commission's complaint alleges that in the fall of 2001, Mangan,
on the basis of material, nonpublic information concerning the PIPE
offering, and in breach of duties of trust and confidence, traded in
CompuDyne stock in advance of the public announcement of the CompuDyne
PIPE offering and its terms. As a result of his unlawful insider
trading, Mangan reaped $56,937 in ill-gotten gains.
The complaint further alleges that after the public announcement of
the PIPE offering, Mangan continued short selling CompuDyne stock.
After the resale registration statement became effective, Mangan used
the shares that HLM obtained in the PIPE offering to cover all of the
short sales. By short selling CompuDyne securities before the
effective date of the resale registration statement for the CompuDyne
PIPE shares, and covering the short sales with the shares HLM received
from the PIPE offering, Mangan effectively sold HLM's PIPE shares
prior to their registration. As a result of Mangan's unregistered
sales of CompuDyne stock, he obtained an additional $121,933 in ill-
gotten gains. Mangan split the profits he earned from his improper
trading with McColl III.
The Commission's complaint alleges that Mangan's short selling of
CompuDyne shares prior to the public announcement of the PIPE offering
violated Section 17(a) of the Securities Act of 1933 (Securities Act)
and Section 10(b) of the Securities Exchange Act of 1934 (Exchange
Act) and Rule 10b-5 thereunder. The complaint further alleges that
Mangan violated Sections 5(a) and 5(c) of the Securities Act by short
selling CompuDyne shares prior to the effective date of the resale
registration statement for the PIPE shares and covering those short
sales with the shares HLM purchased in the PIPE offering. The
complaint also alleges that the Commission has named McColl III solely
as a relief defendant in that action, in connection with his receipt
of trading profits from Mangan.
Without admitting or denying the allegations in the complaint, McColl
III has consented to the entry of a final order, subject to the
court's approval, requiring McColl III, solely as a relief defendant,
to pay a total of $115,643.
The Commission acknowledges the assistance of the NASD with respect to
this matter. [SEC v. John F. Mangan, Jr., Civil Action No. 06-CV-531,
WDNC] (LR-19955)
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