Risk & Compliance

Pension Fund Pays for Alleged Insider Trading

The Retirement Systems of Alabama will pay $750,000 to shareholders of Liberty Corp., in which it purchased shares despite its insider knowledge of...
Stephen TaubMarch 13, 2008

An Alabama pension fund has agreed to pay $750,000 to former Liberty Corp. shareholders as a result of a federal insider trading probe, the Associated Press reported, citing pension officials.

According to the Securities and Exchange Commission, The Retirement Systems of Alabama (RSA) purchased shares of Liberty while in possession of material, non-public information about Liberty’s prospective acquisition by Raycom Media “for a substantial premium over Liberty’s market price.” RSA learned about the transaction because it was to provide financing for the acquisition, the SEC added.

The SEC completed an investigation into the case last week, and though it did not take any action, it warned public pension funds that their risk of violating anti-fraud and other provisions is greater if they do not have adequate compliance policies and procedures to prevent money-management wrongdoing.

Of the RSA matter, SEC chairman Christopher Cox said, “Today’s report reminds public pension funds of their obligations to prevent fraud and protect investors. While public pension funds are exempt from most of the federal securities laws governing other money managers, they are not exempt from important anti-fraud provisions that prohibit insider trading and other manipulative and dishonest behavior that threatens the integrity of our markets.”

The commission noted that RSA did not have any program, policy, practice, or training to ensure that its investment staff understood and complied with the federal securities laws in general, or insider trading laws in particular.

When the information became public, the value of RSA’s Liberty shares increased by more than $700,000, according to the SEC.

David Bronner, the pension fund’s chief executive, told the AP that attorneys initially informed RSA that it could buy up to 5 percent of Liberty’s stock. However, he said, RSA subsequently learned from other attorneys that it should not have bought the stock. He also told the wire service that RSA contacted everyone who sold Liberty shares to the pension system, offering to reimburse the difference in the purchase price of the stock and the stock’s price after the takeover announcement. This amounted to roughly $10 per share.

RSA also agreed to pay interest on the sum, bringing the total amount to $750,000.

In taking no action against the RSA, the SEC said it took into consideration that the pension fund took remedial action that the commission might have sought in an enforcement proceeding, including adoption of a compliance program and compensation to the sellers of the Liberty stock that it purchased.

Also, RSA cooperated in the investigation, a critical factor cited by the SEC in numerous probes over the past few years. And the commission noted that RSA’s trading was directed by its CEO, who cooperated in the investigation and authorized RSA’s remedial action, and that no individual personally profited from RSA’s trading.

4 Powerful Communication Strategies for Your Next Board Meeting