NEW YORK (Reuters) - Three Ontario residents were sued by the U.S. Securities and Exchange Commission for allegedly reaping $1.02 million (C$1.13 million) of illegal trading profits by using inside information on transactions involving Merrill Lynch & Co clients.
Two defendants, Phillip Macdonald and Martin Gollan, were accused of investing in securities of companies that were the targets of mergers and acquisitions, based on tips from the third defendant, Michael Goodman.
The SEC said Goodman has settled without admitting wrongdoing, and will not pay a civil penalty. Gollan did not immediately return a call to his home. Macdonald could not immediately be reached.
In a civil lawsuit filed in Manhattan federal court, the SEC said Goodman learned about possible transactions from his wife, who worked between January and June 2005 as an assistant to managing directors at Merrill Lynch Canada Inc in Toronto.
“Goodman and his wife sometimes discussed what was happening at her job,” the SEC said. “Goodman’s wife expected that her husband would keep this information confidential.”
Instead, the regulator said the 36-year-old Goodman, a scrap metal worker who lives in Thornhill, passed tips to his friend Macdonald, 48, a lawyer and North York resident, and Gollan, 63, a scrap metal dealer also from North York.
The SEC said that through their trading, Macdonald obtained more than $900,000 of gains and Gollan got more than $90,000. It wants the defendants to give up their gains plus $251,000 of interest, pay civil fines and agree to other remedies.
John Freedman, a partner at Arnold & Porter LLP in Washington, D.C. who represents Goodman, said his client cooperated with the SEC and was pleased to resolve the matter.
The SEC said the illegal transactions involved eight target companies, including Burnaby, British Columbia printer software maker Creo Inc, which was bought by Eastman Kodak Co, and Mississauga, Ontario building products company Masonite International Corp, which went private.
The other companies were Commercial Federal Corp, Eon Labs Inc, Electronics Boutique Holdings Corp, Great Lakes Chemical Corp, Performance Food Group Co and Shopko Stores Inc, the SEC said.
Bank of America Corp bought Merrill on January 1. A spokeswoman did not immediately return a call for comment. The SEC said Goodman’s wife no longer works at Merrill.
The case is SEC vs. Macdonald, U.S. District Court for the Southern District of New York (Manhattan), No. 09-5352.
Reporting by Jonathan Stempel, editing by Gerald E. McCormick