-------------------- BEGINNING OF PAGE #1 ------------------- SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 14706 / October 31, 1995 SECURITIES AND EXCHANGE COMMISSION v. CHARLES BRUMFIELD, JOSEPH BRUMFIELD, ROBERT ALLEN, WILLIAM MYLETT, JOSEPH PENNA, JOSEPH CUSIMANO, ALFRED VOLPE, JAMES GALANTE, THOMAS ALGER, JOHN O'BRIEN, LAWRENCE FRIEDMAN, ROBERT FLANAGAN, THOMAS FLANAGAN, SHARON SEIDEN, WARREN SMITH, JOHN LYNCH AND ALBERT BRODY, United States District Court for the Southern District of New York, Civil Action No. 95-9283 (JES). The Securities and Exchange Commission announced today the refiling of a Complaint in the United States District Court for the Southern District of New York against seventeen individuals alleging insider trading in connection with four AT&T acquisition targets in violation of the federal securities laws. The Complaint seeks an injunction, disgorgement, interest, and penalties. The Commission previously filed a complaint in this matter which it later voluntarily withdrew without prejudice pending the completion of a related criminal case against eight of the defendants in the Commission's complaint. Seven of those defendants have entered guilty pleas and the eighth was found guilty by a jury on September 22, 1995. (Additional details of the criminal action are provided below.) The Commission's Complaint alleges the following: While in possession of material, non-public information, certain of the defendants purchased the securities of four companies: Paradyne Corporation, NCR Corporation, Digital Microwave Corporation, and Teradata Corporation. Each of the companies was a take-over target of AT&T. The person at the center of the insider trading ring was Charles Brumfield, at the time a Vice President in AT&T's Human Resources Department. From December 1988 through November 1991, Brumfield used his position at AT&T to learn of the company's plans to acquire Paradyne, NCR, Digital Microwave, and Teradata. With the assistance of Thomas Alger, his close friend and subordinate at AT&T, Brumfield orchestrated widespread trading in the securities of those companies through a circle of family and friends in New York, New Jersey, Illinois, Florida, and North Carolina. The combined trading profits of the defendants in the securities of the four take-over targets was approximately $2.6 million. Trading in Paradyne Securities In December 1990, Charles Brumfield obtained confidential information concerning AT&T's planned tender offer for Paradyne. He passed this information on to Alger and to William Mylett, a close friend, and both bought Paradyne common stock before AT&T announced the tender offer. On December 27, 1988, AT&T publicly announced its tender offer for the common stock of Paradyne. Trading in NCR Securities In November 1990, Charles Brumfield learned confidential information about AT&T's plans to acquire NCR. Charles Brumfield communicated this information to six other defendants: his son Joseph Brumfield and friends Alger, Robert Allen, Joseph Cusimano, Mylett, and Joseph Penna. At the time, Penna was the president of the International Brotherhood of Electrical Workers Local 827 and chairman of the IBEW national council established -------------------- BEGINNING OF PAGE #2 ------------------- for handling labor negotiations with AT&T. In turn, Alger passed along the information about NCR to five of his friends who have been named as defendants: brothers Robert and Thomas Flanagan, Sharon Seiden, John O'Brien, and Albert Brody. On December 2, 1990, AT&T announced its tender offer for NCR. The NCR tippees realized profits of approximately $2,275,281 from illegal trading in NCR securities. Trading in Digital Microwave Securities In March 1991, Charles Brumfield learned confidential information about AT&T's plans to acquire Digital Microwave. As he had done with the information about NCR, Charles Brumfield tipped Cusimano, Mylett, and Alger. Alger, in turn, tipped O'Brien, Friedman, and Robert Flanagan. Cusimano in turn passed the tip to Alfred Volpe, who tipped James Galante. Similarly, Robert Flanagan tipped his friend Warren Smith, a lawyer, and Smith's law partner, John Lynch. While AT&T aborted its planned acquisition of Digital Microwave, most of the defendants profited from their trading in Digital Microwave securities because Brumfield again leaked confidential information by telling them to sell as soon as he learned that AT&T had abandoned the acquisition. The Digital Microwave tippees realized profits of approximately $67,304 from their illegal trading. Trading in Teradata Securities In November 1991, Brumfield learned confidential information about AT&T's plans to acquire Teradata through AT&T's wholly owned subsidiary NCR. Brumfield then tipped Alger, Cusimano, and Allen. Alger, in turn, tipped O'Brien, Friedman, Brody and Robert Flanagan. Flanagan passed the information on to Smith, and Cusimano passed on the information to Volpe, who in turn passed it on to Galante. On December 2, 1991 AT&T announced that Teradata and AT&T's wholly owned subsidiary, NCR, had agreed to merge. Eight defendants realized profits of approximately $285,759 from illegal trading in the securities of Teradata. Secret Payments and Other Concealment Efforts Charles Brumfield and Alger received secret payments in excess of $300,000 from certain of the other defendants out of their profits from trading in NCR, Digital Microwave, and Teradata. During the Commission's investigation, Charles Brumfield conspired with certain other defendants to provide false testimony to the Commission and to create false documents to cover up the nature and extent of their illegal trading activities. Several of these defendants, including Brumfield, provided false testimony and false documents to the Commission. Criminal Actions On February 7, 1995, the United States Attorney for the Southern District of New York announced that a federal grand jury had indicted Allen, Robert Flanagan, Thomas Flanagan, Mylett, Brody, and Cusimano on charges of conspiracy to violate the antifraud provisions of the federal securities laws and obstruct the Commission's investigation of their illegal trading in the securities of the AT&T acquisition targets. Also on February 7, 1995, the United States Attorney announced that (1) Charles Brumfield and Thomas Alger had pled guilty to criminal informations charging them with participation in the same conspiracy, and (2) Charles Brumfield had pled guilty to one -------------------- BEGINNING OF PAGE #3 ------------------- count of perjury in connection with false testimony given to the Commission. Since February 7, 1995, Thomas Flanagan, Mylett, Brody, Allen and Cusimano all pled guilty to the conspiracy, and Robert Flanagan was convicted by a jury on one count of conspiracy and two counts of securities fraud. All of the defendants currently are awaiting sentencing.