Risk Management

SEC Settles Stock Sale Case with Ex-CFO

Former executive of Ferguson Enterprises to pay $72,806.
Sarah JohnsonAugust 31, 2006

The Securities and Exchange Commission settled an insider trading complaint yesterday against Stewart P. “Tom” Mitchell, former CFO of Ferguson Enterprises, one of the largest distributors of heating and cooling equipment in the U.S.

The SEC had alleged that Mitchell was using material nonpublic information to purchase and later sell 1,454 shares of a company he knew was looking to be acquired. According to the SEC Mitchell made a profit of $35,214 on the sale.

Mitchell has agreed to disgorge the gains, and pay $2,378 in prejudgment interest, as well as a one-time civil penalty of $35,214. The total amount owed is $72,806. He did not admit or deny the allegations to the SEC.

A call from CFO.com to Mitchell’s residence in Newport News, Va., was not immediately returned. Mitchell worked at Ferguson since 1978 and left the company last year.

Ferguson spokesperson Jennifer Gwaltney declined to comment directly on the case, but referred to a prepared statement from the company: “We note the allegations in the complaint filed by the SEC against former associate Tom Mitchell. These relate solely to personal trading by him in his individual capacity…. The complaint makes no allegations of wrongdoing by Ferguson or any other persons presently or formerly associated with Ferguson.”

In mid-January 2005, an investment banker approached Ferguson about the possibility of acquiring Noland Co., a mechanical equipment distributor, according to SEC documents. Mitchell, CFO at the time, was responsible thereafter for the due diligence process of a possible cash tender offer of Noland’s shares. According to the SEC’s complaint, Mitchell was told more than once from the beginning of the discussions that the matter needed to remain confidential. On January 28, says the SEC, Mitchell signed the investment banker’s confidentiality agreement on behalf of Ferguson that required information obtained about Noland, before or after the agreement was finalized, remain private.

Between January 11 and April 7, Mitchell made six personal purchases of Noland common stock under his name and those of his two sons, continued to the SEC. His last two transactions, claim the SEC, occurred after he knew Ferguson was not going to acquire Noland. The two orders, made on April 7, were made between the time other companies’ tender offers were due (April 1), and when Noland would make its public announcement.

On April 12, 2005, Noland publicly announced that it had agreed to be acquired by WinWholesale, a Dayton, Ohio, distributor. Three days later, Mitchell sold all his shares of Noland stock, according to the SEC documents. The price of Noland shares increased by more than 50 percent after the announcement, stated the SEC.

Earlier this year, Mitchell joined the board of directors of clothing retailer Chico’s. He offered his resignation, effective August 11, according to an 8-K Chico’s filed with the SEC. “He resigned from the board for personal reasons,” says Michael Smith, vice president of Chico’s investor and community relations. Smith said he was unaware of the SEC case involving Mitchell.