Appeals Court Exhumes SEC Insider-Trading Case Against Obus

Sep 7 2012 | 11:20am ET

The Securities and Exchange Commission's insider-trading case against Wynnefield Capital founder Nelson Obus and two others will move forward, after all.

The regulator won its appeal of a two-year-old lower court decision dismissing its lawsuit against Obus, Wynnefield analyst Peter Black and Black's friend Thomas Strickland. The SEC accuses Strickland, who worked at GE Capital, of tipping Black off to Allied Capital Corp.'s planned acquisition of SunSource in 2001. Black then allegedly told Obus, who bought up a 6% stake in SunSource, turning a $1.34 million profit for his three hedge funds.

The lower court had cited a GE Capital investigation which found that Strickland had not violated a duty to his employer. But the Second Circuit Court of Appeals in Manhattan said that was not enough evidence to exonerate Obus, Black and Strickland without trial.

"The GE investigation was motivated by corporate interests that may or may not coincide with the public interest in unearthing wrongdoing and affording a remedy," U.S. Circuit Judge John Walker Jr. wrote.

"The SEC established genuine issues of material fact with respect to its claims of insider trading," Walker wrote. A "rational jury could reasonably infer from the SEC's evidence that Strickland did tell Black that SunSource was about to be acquired."

Obus' lawyer, Joel Cohen, said his client was "disappointed" by the ruling, adding, "For over 10 years, Mr. Obus and Wynnefield Capital have refused to settle this lawsuit as a matter of principle. The facts remain the same: The lawsuit is baseless."


In Depth

'Smart Beta' Funds In Regulators' Sights, Hedgies May Be Next

Mar 26 2015 | 11:11am ET

Funds that mimic strategies used by active managers for a fraction of the cost could...

Lifestyle

Study: Both Marriage and Divorce Lead to Negative Hedge Fund Performance

Mar 25 2015 | 6:51pm ET

Trouble at home leads to trouble in the market for fund managers, according to researchers...

Guest Contributor

The Life Settlement: Yield For The Investor And Cash For The Consumer

Mar 31 2015 | 6:48am ET

Investors are languishing in a yield-starved, low-interest rate environment, looking...

 

Sponsored Content

    Mar 9 2015 | 6:35am ET

    Kelly RodriquesKelly RodriquesAs more investors look to diversify, many are beginning to use retirement funds to invest in alternative assets such as private equity and real estate. Kelly Rodriques, CEO & President of PENSCO Trust Company, explains how companies can connect with those looking to use their retirement accounts in a different way. Read more…

Editor's Note