The SEC alleges that W. Gary Griffiths and Cliff M. Steffes learned confidential information in early 2007 about the upcoming acquisition of Florida East Coast Industries Inc. (FECI), which owned the freight railway where they worked in Jacksonville, Fla. Griffiths and Steffes tipped family members with the non-public information. The traders collectively purchased more than $1.6 million in company stock and options ahead of the May 8, 2007 announcement of the acquisition of FECI by an affiliate of Fortress Investment Group LLC.
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"We allege these individuals exploited their personal and family relationships for monetary gain and that their misuse of confidential information gave them an illegal advantage over other traders in the market," said Merri Jo Gillette, Director of the SEC's Chicago Regional Office.
According to the SEC's complaint filed in U.S. District Court for the Northern District of Illinois, Griffiths is a resident of Elkton, Fla., and vice president and chief mechanical officer of Florida East Coast Railway. Steffes, who currently resides in Lisle, Ill., worked in the rail yard in Jacksonville when the insider trading scheme occurred.
The SEC alleges that in the weeks leading up to the impending acquisition of FECI, the two men tipped Rex C. Steffes, who is Steffes's father and Griffiths's brother-in-law, with the confidential information. Also tipped were the two brothers of Cliff Steffes — Bret Steffes and Rex R. Steffes — and his uncle Robert J. Steffes. The insider trading scheme generated more than $1 million in illicit profits after the acquisition of the company was announced publicly.
The SEC has charged the defendants with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Without admitting or denying the SEC's allegations, Robert J. Steffes has consented to a court order that would permanently enjoin him from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and require him to pay disgorgement of $104,981, prejudgment interest of $15,951 and a penalty of $104,981.
This case was investigated by Scott B. Tandy, Kent W. McAllister, Kevin R. Barrett, Rebecca Bernard, John J. Sikora, Jr. and Norman Jones in the SEC's Chicago Regional Office.
The SEC appreciates the assistance of the Financial Industry Regulatory Authority (FINRA) and the Chicago Board Options Exchange (CBOE) in this matter.
For more information about this enforcement action, contact:
Timothy L. Warren
Associate Director, SEC's Chicago Regional Office
312-353-7394
John J. Sikora, Jr.
Assistant Director, SEC's Chicago Regional Office
312-353-7418
