SEC Sues Family For Alleged Insider Trading Of Verifone
AUG 20,1999
WASHINGTON -(Dow Jones)- In a case that may test marriage vows, the U.S.
Securities and Exchange Commission announced Friday it has filed a civil suit
against a father, his son, and a family friend for alleged insider trading in
options of VeriFone, Inc.
VeriFone announced it would be acquired by Hewlett-Packard Co. (HWP) in
April 1997, which sent its stock soaring nearly 57% in a single day.
The SEC complaint, filed in U.S. District Court for the Northern District of
Georgia, alleged insider trading in VeriFone options and names Floyd P.
Goodson, of Alpharetta, Ga.; his father, James F. Goodson, and John R. Fiser,
both of Knoxville, Tenn.
None of the three was an insider at VeriFone, based in Redwood City, Calif.,
but Floyd Goodson's wife, Amy, was a VeriFone employee and learned the company
would be sold during a corporate retreat in California's wine country.
Concerned about her career, she phoned her husband to seek his support and
advice, the SEC said.
"She did it in confidence, and he turned around that evening and told his
father," said John Yun, district trial counsel with the SEC's San Francisco
office.
Goodson's father, co-founder, president and chief executive of the Goodson
Brothers Coffee Co., quickly used the information, buying call options on
VeriFone stock that yielded a one-day profit of $62,374, according to the SEC.
Besides phoning his father, the SEC alleges, Goodson tipped Fiser, a
business partner he owed about $200,000, and told him he could make "quick
money" if he bought VeriFone options. Fiser followed that advice, reaping
$146,907 in a single day, the SEC said.
In fact, the SEC said Fiser was so eager to buy that after being told that
he had purchased the maximum number of options permissible in his brokerage
account, he opened a second account at another firm and bought three times as
many call options.
Floyd Goodson never traded himself, but SEC attorneys said he knew or should
have known that his father and Fiser would do so based on what he told them.
They also claim he violated his duty to his wife by passing along confidential
information about her employer.
"We say that the husband stole valuable information from the wife" and
obtained benefits by giving it to his father, who employs him, said Helane
Morrison, assistant district administrator in the SEC's San Francisco office.
Morrison acknowledged the case hinges on Floyd Goodson and his duty to his
wife, but said the SEC will argue that marriage vows "impose a duty of
confidentiality."
Bringing the case in Atlanta, where Amy Goodson lives, should help the SEC.
In its complaint, the SEC notes that under Georgia common law and state code,
spouses owe each other a duty of trust and confidence. "Floyd breached his duty
of trust and confidence to Amy when he misappropriated the confidential
information" she told him in confidence, the SEC's complaint alleges.
Wade Davies, partner with Ritchie, Fells and Dillard, in Knoxville, Tenn.,
who represents Goodson and his father, said the two men are confident they will
prevail at trial. Fiser's attorney, Keith McCord, wasn't available for comment.
"Our position is our clients haven't violated any rule," said Davies. He
said both will dispute "the SEC's theory that Floyd Goodson somehow violated
federal securities laws by disclosing a conversation he had with his wife."
Make that his ex-wife: Amy and Floyd Goodson divorced in December, 1998,
after seven years of marriage. Davies said the insider-trading investigation
wasn't the reason for the breakup. Amy Goodson's attorney didn't return a phone
call seeking comment.
Amy Goodson is expected to testify at a trial, which is probably a year
away. Although she and Floyd have split, the case is likely to test contentious
issues of marriage and confidentiality, an area where the SEC has had mixed
success.
Last year, a Philadelphia judge dismissed the SEC's insider-trading case
against cable television executive Harold Lenfest and his wife, Marguerite,
saying there was insufficient evidence. Lenfest didn't trade and his wife, who
did, said she picked stocks based on her own analysis, rather than something
her husband might have told her.
Attorneys also point to the roller-coaster case of Robert Chestman, a former
stockbroker who learned inside information about Waldbaum's after its president
told his sister, who told her daughter, who told her husband, who told
Chestman. Despite the long chain of tips, Chestman was convicted of insider
trading in 1989. The conviction was overturned on appeal, reinstated, and then
upheld in a Supreme Court ruling in 1992.
Importantly, at the appellate level, the court reined in the SEC, saying it
can't bring insider-trading cases against company "outsiders" with no duty to
abstain unless they explicitly agreed to keep the information confidential, or
if the relationship between the tipper and the one being tipped is one of
"trust and confidence."
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