A Family Affair: Insider Trading

The Securities and Exchange Commission filed a spate of insider trading cases last year accusing husbands and wives of a criminal kind of pillow talk: Sharing nonpublic information on mergers and acquisitions.

How about fathers and sons? The S.E.C. filed a complaint Tuesday against Charles R. Norton, 58, and Chad R. Norton, 33, accusing them with trading in the stock of Valley Bancorp shortly before Community Bancorp bought it on June 28, 2006.

The complaint alleges that Charles, a member of the Community Bancorp board since 1998, tipped his son, who traded ahead of the announcement. The pair realized illegal profits of $35,064.71, regulators say.

The case even involves pillow talk, albeit from a hospital bed: On April 1, 2006, Charles Norton had a heart attack while competing in a triathlon near Lake Mead, Nevada; he spent two-and-a-half weeks recuperating in the hospital, the S.E.C. says. A week after Charles was stricken, Chad assumed temporary trading authority over the Norton family accounts at Wells Fargo Investments.

Charles learned of the imminent Valley Bancorp acquisition "on or about" May 16, 2006; Chad "visited or telephoned" his father every day in May and June 2006. During this time, he frequently called Well Fargo from his father's cell phone, buying Valley stock and allocating it "in a pattern similar to how his father had apportioned trades across those accounts," according to the complaint.

"Chad knew, or was reckless in not knowing, that his Charles had breached his duty" as a Community board member in spilling the beans about the Valley acquisition, the S.E.C. contends.

The day after the Valley acquisition was announced, its shared jumped more than 13 percent. In July, Chad sold the stock at a profit of about $35,000. That may seem like chump change, but it is in the ballpark of many intrafamily insider trading cases.

A hard-learned father/son lesson. The price? The Nortons settled the S.E.C. complaint, without admitting or denying the charges, for $38,433.72 — the amount of their gains on the trades and prejudgment interest, and another $35,064.71 in a civil penalty. (Civil penalties often equal the amount of gains in insider trading cases.)

Lawyers for Charles and Chad Norton could not be reached for comment.

Still, what happened in Vegas stayed in Vegas: A federal court in Vegas.

by Karen Donovan