UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
SECURITIES AND EXCHANGE COMMISSION :
Case: 1 :08-cv-01784
100 F Street, N.E.
Washington, DC 20549,
Plaintiff, :
BRIAN D. LADIN
C/O Franklin B. Velie, Esq.
Sullivan & Worcester LLP
1290 Avenue of the Americas
New York, NY 10104
Defendant, .
and
BONANZA CAPITAL, LTD.
BONANZA MASTER FUND LTD.
C/O Caryn G. Schechtman, Esq.
Jeffrey B. Coopersmith, Esq.
DLA Piper US LLP
125 1 Avenue of the Americas
New York, NY 10020-1 104,
Relief Defendants. :
COMPLAINT
Plaintiff Securities and Exchange Commission ("Commission") alleges:
SUMMARY OF ALLEGATIONS
1. Defendant Brian D. Ladin ("Ladin"), a former analyst for Bonanza Capital, Ltd.,
the investment adviser for Bonanza Master Fund Ltd. (collectively, "Bonanza"), a $500 million
hedge fund, engaged in unlafil trading in connection with Bonanza's investment in a February
2004 private offering of Radyne ComStream Inc. ("Radyne") securities.
2. After Ladin agreed to keep the offering information confidential, he presented an
investment in Radyne to Bonanza that resulted in Bonanza creating a short position in violation
of the duty of confidentiality Ladin had assumed as to the offering information. Ladin also, on
behalf of Bonanza, signed the stock purchase agreement in which he represented that Bonanza
did not hold a short position in Radyne stock, even though he knew, or was reckless or negligent
in not knowing, that Bonanza held such a short position. Ladin profited and caused Bonanza to
profit as a result of the unlawful conduct described herein.
3. By engaging in the acts alleged herein, Ladin engaged in, and unless permanently
restrained and enjoined by the Court will continue to engage in, transactions, acts, practices and
courses of business that violate Section 10(b) of the Securities Exchange Act of 1934
("Exchange Act") [15 U.S.C. 5 78j(b)] and Rule lob-5 promulgated thereunder [17 C.F.R.
5 240.10b-51, and Section 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. fj
77q(a)l-
4. The Commission seeks a judgment fiom the Court: (a) enjoining Ladin from
engaging in future violations of the above sections of the federal securities laws; and (b) ordering
Ladin and relief defendants Bonanza Capital, Ltd. and Bonanza Master Fund Ltd. to disgorge the
ill-gotten gains derived fiom the unlawful conduct alleged, plus prejudgment interest; and (c)
ordering Ladin to pay a civil money penalty pursuant to Sections 2 1 (d)(3) and 2 1 A of the
Exchange Act [15 U.S.C. $5 78u(d)(3) and 78u-I].
JURISDICTION
5. The Court has jurisdiction over this action pursuant to Sections 20(b), 20(d) and
22(a) of the Securities Act [15 U.S.C. $8 77t(b), 77t(d), and 77v(a)] and Sections 21(d)(l), 21A
and 27 of the Exchange Act [15 U.S.C. $5 78u(d)(l), 78u-1, and 78aal.
6. Ladin, directly or indirectly, made use of the means or instruments of
transportation or communication in interstate commerce, or of the mails, and made use of the
means and instrumentalities of interstate commerce, or the facilities of a national securities
exchange, in connection with the transactions, acts, practices, and courses of business alleged in
this Complaint.
DEFENDANT
7. Brian D. Ladin, age 36, is a resident of Dallas, Texas. He joined Bonanza
Capital, Ltd. as an analyst in February 2001, and remained at Bonanza Capital, Ltd. until
November 2007.
RELIEF DEFENDANTS
8. Bonanza Capital, Ltd., a limited partnership, is headquartered in Dallas, Texas.
It serves as the investment adviser for Bonanza Master Fund Ltd. Its general partner is Bonanza
Fund Management Inc.
9. Bonanza Master Fund Ltd., a hedge fund, is a Cayman Islands limited liability
exempted company. Bonanza Capital, Ltd. is its investment adviser.
STATEMENT OF FACTS
10. From February 2001 until November 2007, Ladin served as an analyst for Bonanza.
11. The offering at issue was a PIPE (an acronym for "private investment in public
equity") and involved the private sale of restricted shares by the Radyne's majority shareholders,
Stetsys Ptd. Ltd. and Stetsys US, Inc., rather than the sale of new shares of the issuer.
12. Because PIPES are unregistered offerings, PIPE investors receive restricted
securities when the transaction closes. In order for investors to resell those restricted securities
publicly, either they must comply with a valid exemption from registration (i.e., Section 4(1) of
the Securities Act) or the issuer must file, and the Commission must declare effective, a resale
registration statement, a process that may take 60 to 120 days to complete.
13. PIPE investors therefore must wait a certain period of time before they can
publicly trade the securities they received in the PIPE. To compensate investors for this
temporary illiquidity, PIPE investors customarily receive the restricted securities at a discount to
the then-prevailing market price.
14. When a PIPE is announced publicly, the issuer's stock price typically declines
due to, among other factors, the impact of discounted offering share price. Knowledge of the
impending public announcement of a PIPE offering is therefore valuable and material non-public
information.
15. A reasonable investor would have considered information concerning the offering
that is the subject matter of this Complaint - including the date of the offering, the discounted
price of the stock, the number of shares, and that fact that the purpose of the offering was to
enable Radyne's majority stockholders to liquidate their investment in Radyne - important to his
or her investment decision and a significant alteration of the total mix of information available to
the public.
16. In connection with the instant offering, registered broker-dealer Roth Capital
Partners, LLC ("Roth") was retained to serve as the placement agent - among other things, it
solicited investors and conducted a roadshow.
17. On January 29, 2004, a Roth salesperson called Ladin and informed him that he
had information about an offering - information that was material, non-public information.
Ladin accepted a duty of confidentiality as to the information and the salesperson disclosed to
him the offering details.
18. Despite knowing, or recklessly not knowing, that he therefore could not trade
Radyne securities until after the offering was announced, on February 1 1,2004, Ladin, on the
basis of material, non-public PIPE information, presented an investment in Radyne to Bonanza,
resulting in Bonanza establishing a 100,000 share short position in Radyne stock.
19. On February 12,2004, Ladin, on behalf of Bonanza, signed the stock purchase
agreement in which he represented that Bonanza "does not hold a short position, directly or
indirectly, in any shares of the Company's common stock," even though he knew, or was
reckless or negligent in not knowing, that Bonanza held a short position in Radyne's common
stock.
20. The PIPE was publicly announced before the markets opened on February 17,
2004. Radyne's stock price declined following the announcement of the offering.
21. Having received material, non-public information concerning the offering after
accepting a duty of confidentiality as to the information, Ladin owed a duty of trust or
confidence.
22. By the conduct described above, Ladin breached that duty of trust or confidence
and engaged in illegal insider trading.
23. As a result of the conduct described above, both Ladin and Bonanza earned
unlawful profits.
---
FIRST CLAIM FOR RELIEF
(Defendant Ladin)
Violation of Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder
[15 U.S.C. 5 78j(b) and 17 C.F.R. tj240.10b-51
24. The Commission realleges and reincorporates paragraphs 1 through 23 as if fully
set forth herein.
25. Defendant Ladin, directly or indirectly, by use of the means or instrumentalities of
interstate commerce or of the mails, or the facilities of a national securities exchange, in
connection with the purchase or sale of securities: (a) employed devices, schemes, or artifices to
defraud; (b) made untrue statements of material facts or omitted to state material facts necessary
in order to make the statements made, in light of the circumstances under which they were made,
not misleading; andlor (c) engaged in acts, practices, or courses of business which operated or
would operate as a fraud or deceit upon other persons.
26. By reason of the foregoing, the defendant violated Section 10(b) of the Exchange
Act [15 U.S.C. 5 78j(b)] and Rule 10b-5 thereunder 117 C.F.R. 5 240.10b-51.
SECOND CLAIM FOR RELIEF
(Defendant Ladin)
Violation of Section 17(a) of the Securities Act
[15 U.S.C. 5 77q(a)]
27. The Commission realleges and reincorporates paragraphs 1through 26 as if fully
set forth herein.
28. Defendant Ladin, directly or indirectly, by use of the means or instruments of
transportation or communication in interstate commerce, or of the mails, in the offer or sale of
securities: (a) employed devices, schemes, or artifices to defraud; (b) obtained money or property
by means of untrue statements of a material fact or omission to state a material fact necessary in
order to make the statements made, in light of the circumstances under which they were made,
not misleading; andfor (c) engaged in transactions, practices, or courses of business which
operated or would operate as a fraud or deceit upon the purchaser.
29. By reason of his actions alleged herein, the defendant violated Section 17(a) of
the Securities Act 115 U.S.C. 8 77q(a)].
THIRD CLAIM FOR RELIEF
(Relief Defendants Bonanza Capital, Ltd. and Bonanza Master Fund Ltd.)
30. The Commission realleges and reincorporates paragraphs 1 through 29 as if fully
set forth herein.
31. In the manner described above, relief defendants Bonanza Capital, Ltd. and
Bonanza Master Fund Ltd. were unjustly enriched as a result of Ladin's conduct in that such
conduct caused Bonanza Capital, Ltd. and Bonanza Master Fund Ltd. to receive ill-gotten gains
to which they have no legitimate claim.
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that the Court enter a judgment:
I. Enjoining permanently defendant Brian D. Ladin from violating Section lO(b) of the
Exchange Act [15 U.S.C. $78j(b)] and Rule lob-5 thereunder [17 C.F.R. 5 240.10b-51, and
Section 17(a) of the Securities Act [15 U.S.C. 5 77q(a)];
II. Ordering defendant Brian D. Ladin and relief defendants Bonanza Capital, Ltd. and
Bonanza Master Fund Ltd. to disgorge ill-gotten gains derived from Ladin's u n l a h l conduct
alleged herein, plus prejudgment interest;
III. Ordering defendant Brian D. Ladin to pay a civil monetary penalty pursuant to Sections
21 (d)(3) and 21A of the Exchange Act [I 5 U.S.C. $5 78u(d)(3) and 78u-I]; and
IV.
Granting such other relief as this Court may deem just and proper.
Dated: Octobear ,20 08 Respectful1y submitted
Scott W. Friestad
Robert B. Kaplan
Julie M. Riewe D.C Bar No. 472470)
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
100 F Street, N.E.
Washington, DC 20549-6041
Telephone: (202) 55 1-4969 (Kaplan)
Facsimile: (202) 772-9333 (fax) (Kaplan)
Electronic Mail: kaplanr@sec.gov
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