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Ex-IBM worker charged
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May 26, 1999: 3:55 p.m. ET
SEC says former secretary, 24 others profited illegally from 1995 Lotus deal
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NEW YORK (CNNfn) - In one of its most intricate cases on record, the Securities and Exchange Commission Wednesday charged a former IBM secretary and 24 of her relatives, friends and co-workers of pocketing more than $1.3 million from knowing IBM was going to take over Lotus Development Corp.
Lorraine K. Cassano of North Salem, N.Y., her husband Robert and a network of people they both knew have been charged with profiting from knowing IBM's (IBM) plans to take over software maker Lotus for $3.3 billion in June 1995 before the bid was made public, the SEC said in its complaint. The charges were filed in the U.S. District Court in Manhattan.
Four of the defendants -- the Cassanos from Staten Island, N.Y, Michael Green, an Edison, N.J., salesman for a paging communications company, and Gary Spierer, a Staten Island, N.Y., doctor -- all have agreed to settle with the SEC, the commission's Boston office said. The remaining 21 defendants will receive summons within the next few days and they will have 20 days to respond to the allegations.
"It is certainly one of the largest cases we've handled, without a doubt," said Juan Marcel Marcelino, district administrator of the SEC's Boston branch. "It's seldom you see information spread so rapidly from one source in such a short period of time."
In its filing, the SEC painted a picture of planned and measured steps those involved took to profit from IBM's pending takeover of Lotus.
According to the suit, Cassano first heard of IBM's plans to acquire Lotus in May 1995 after copying documents concerning the takeover for her boss. She then informed her husband about the planned takeover, updating him along the way on various developments, the lawsuit said.
Robert Cassano then shared the information with two friends and arranged for them to buy Lotus stock and "on the money" call options for him in their accounts. Call options allow an investor to place a small amount of money up front on the bet that a company's share price will rise.
"Those two friends then tipped others, and the misappropriated information spread rapidly through a wide network of family members, friends, and stock brokers," the suit said, culminating into a flurry of illegal insider trading during a six-hour period on Friday, June 2, 1995. IBM officially made public its intentions regarding Lotus on the following Monday.
Lotus shares almost doubled following the announcement, surging to more than 61 a share from 32-1/2. Jonah Rosenblatt, at the time a stockbroker with Russo Securities, profited the most from the inside information, realizing approximately $468,000 in illegal trading profits, according to the suit.
All told, 25 people were involved, including an engineer, a school teacher, a banker, a lawyer, a deli operator and a pizzeria owner, the SEC said.
And it's not just money that investigators are seeking to recover. Marcelino said he and the other investigators who worked on the case acted in tandem with the Federal Bureau of Investigation and the U.S. Attorney's office.
"We will attempt to go after the money, but we have also encouraged criminal authorities to bring criminal charges where appropriate," Marcelino said.
In fact, seven of the 25 named in the suit already have been handed criminal charges, Marcelino said. Two of them, Peter G. Mazzone and Gary Spierer, pleaded guilty last year in connection with insider trading of Lotus stock. Mazzone pleaded guilty to insider trading and perjury, and Spierer pleaded guilty to obstruction of justice.
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