(January 30 – 09:25 ET) – The U.S. Securities and Exchange Commission is seeking sanctions against a couple of venture capitalists for illegal insider trading based on information they picked up at a confidential mentoring session.

The SEC yesterday filed a complaint in the U.S. District Court for the Northern District of California against Keith Kim and Douglas Park, both officers of Brainrush Inc., an Oakland-based venture capital firm, and William Park, Douglas Park’s brother. The complaints stems from insider trading in Meridian Data Inc. ahead of its May 11, 1999 public announcement of its acquisition by Quantum Corp. The SEC is seeking injunctive relief, disgorgement of profits of at least US$1.45 million, civil penalties, and prejudgment interest.

According to the complaint, Kim and the former CEO of Meridian were members of the Young Presidents’ Organization, an international organization comprised of company presidents under the age of 50, who meet for peer mentoring. In March 1999, Meridian’s then-CEO and other YPO members were scheduled to attend a retreat together in Colorado. While on board a private plane to the retreat, the YPO forum’s moderator announced that Meridian’s CEO could not attend the retreat because he was in merger negotiations with Quantum.

The SEC says Kim misappropriated this material nonpublic information, “despite the fact that the core values of the YPO emphasize a relationship of trust and confidentiality”. The complaint alleges that Kim then purchased Meridian stock in advance of the announcement of the merger and reaped profits of at least $832,877 as a result of his illegal trading.

The SEC also charges that Kim tipped his friend and business associate, Douglas Park, concerning merger discussions between Meridian and Quantum, and that Park traded while in possession of the material nonpublic information, making profits of at least US$200,885 as a result of his illegal trading. The also says that Park, in turn, tipped his brother who also purchased Meridian in advance of the merger and made profits of at least US$361,000. Kim also caused his brother, his brother-in-law, and a friend and business associate to purchase Meridian, and that these three men collectively made profits of at least US$58,539 as a result of their trading.

The U.S. Attorney for the Northern District of California has also announced the filing of a criminal complaint against Kim for violations of the federal securities laws and Kim’s arrest by the FBI.
-IE Staff