Obus on trial this week after SEC gets second chance at insider trading allegations

The SEC sued the defendants in 2006, but the judge threw out the case in 2010, a ruling that was later overturned by an appeals court

The second trial of Nelson J. Obus, manager of Wynnefield Capital, a New York hedge fund, began this week in a New York City courtroom in connection with insider trading allegations.

Obus was brought to court in a civil trial by the Securities and Exchange Commission (SEC) after he allegedly received inside information that SunSource, which makes nuts and bolts, was to be acquired by Allied Capital Corp.

Obus purchased stock in the company, and earned $1.3 million for his hedge fund when SunSource's shares jumped in price, the SEC said.

Two witnesses said in depositions that Obus had told them he was given information about SunSource. Paul Kisslinger, the SEC’s lawyer, told jurors this week in his opening statement that Obus told SunSource’s CEO that “a little birdie” at General Electric Capital Corp. had told him about the sale to a “financial buyer,” Bloomberg News reported.

The SEC is also suing the “little birdie” referred to in the case, who authorities claim is Brad Strickland, a former GE Capital underwriter. The SEC is suing, too, Peter Black, a former analyst for Wynnefield. The SEC claims Strickland told the information to Black, who then told the information to Obus. The three defendants deny wrongdoing, Bloomberg said.

The SEC sued Obus, Black and Strickland in 2006, but U.S. District Judge George Daniels, who is presiding at the current trial, threw out the prior case in 2010. There were not enough facts “to prove that Strickland had passed illegal inside information,” Bloomberg reported. But a federal appeals court rejected Daniels’ ruling in 2012.

This week, Joel M. Cohen, a lawyer representing Obus, said, ‘‘The SEC’s theory makes no sense.’’

Now, the SEC wants to see penalties and to ban the three men from being officers and directors.

This week, Obus testified for about six hours and denied wrongdoing. “My father was very concerned with insider trading, and he passed that on to me,” Obus testified, recalling his father who was a stockbroker,The New York Times reported.

“One saves himself by telling the truth,” Obus added in testimony. In addition, Cohen told the jury this week, "Confessing is the opposite of concealing…. After 13 years, this is the best the SEC is going to offer you: two witnesses' uncorroborated memories," The Wall Street Journal reported.

On the other hand, Kisslinger told jurors, "It's as if he knew which horse was going to win the Belmont Stakes before the race began," The Journal reported.

 

Further reading:

No tipping, no stealing says the SEC

 

SAC Capital settlement approved but will prosecutors next try to nab hedge fund founder Steven Cohen?

 

SEC to collect illegal proceeds from insider trading

2nd Circuit gives SEC key ruling in insider trading cases

 

 

 

 

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Ed Silverstein

Ed Silverstein is a veteran writer and editor for magazines, websites and newspapers. A graduate of Harvard's Kennedy School of Government, he has won several...

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