Five California options traders yesterday sued the Washington brokerage firm of Bellamah, Neuhauser and Barrett Inc. and eight of its brokers for allegedly using insider information about a pending corporate takeover of Santa Fe International Inc. in 1981 for their own benefit.
The suit filed in U.S. District Court here cited allegations by U.S. Attorney Stanley S. Harris that the eight brokers and three other Washington-area residents made a profit of more than $900,000 in one week on investments of $8,688 as a result of disclosure of information that the Kuwait government was about to acquire Santa Fe.
Mirroring Harris' allegations, the suit also named as defendants Thomas A. Peacock, director of government relations for Wheelabrator-Frye Inc., and John M. Nugent Jr., formerly a vice president of Timmons and Co.
Nugent has pleaded guilty to passing the information on the takeover to Peacock after Santa Fe, a California oil firm, hired the Timmons lobbying and public relations firm to assist in the acquisition. Peacock, in turn, told the brokers, according to a document filed by Harris in the case last month.
Based on that information, Harris has said, Peacock and the brokers then bought options that permitted them to buy more than 70,500 shares of Santa Fe common stock at $30 a share. The market price of the stock soared to $44.75 once the news of the acquisition became public. The options themselves each cost about 12 cents.
The suit, filed by Richard James French, Jose Pascual, Harry C. Polonitza, Steven S. Mitchell, and Alan Schmidt, accused the 11 individual defendants of engaging in fraud and violating securities laws. The Bellamah firm aided the violations by failing to adequately supervise its brokers, according to the suit.
Frederick J. Bellamah, president of the brokerage firm, noted yesterday that no criminal charges had been brought against the firm. "Good luck to them," he said of the traders who brought suit yesterday. "They have no grounds for any statements like that."
Lawyers for Nugent and Peacock said they had not yet read the complaint and could not comment.