A U.S. District Court judge yesterday ordered a Washington lobbyist to pay $10,000 in fines and to perform 300 hours of community service for disclosing confidential information on an impending corporate takeover.
That information allegedly enabled 11 persons, including eight local stockbrokers, to reap more than $900,000 in profits in one week on investments of less than $9,000, according to documents filed by prosecutors.
Judge Barrington D. Parker imposed the fine on John M. Nugent Jr., 39, a former vice president and partner in Timmons and Co., a lobbying and public relations firm. Nugent was with the firm when it was hired in 1981 by Santa Fe International Corp., a California oil products firm that was about to be acquired by the government of Kuwait.
Nugent, who pleaded guilty last May to a charge of aiding and abetting in the illegal trading of inside information, has said he had no idea that a friend he spoke to, Thomas A. Peacock, director of government relations for Wheelabrator-Frye Inc., allegedly would make a $250,000 profit after Nugent told him of the planned takeover.
Peacock allegedly passed along the information to a broker at the firm of Bellamah, Neuhauser and Barrett Inc. without identifying the source of his information. Brokers at that firm and other persons made profits ranging from $12,738 to $216,925, according to prosecutors.
Frederick Bellamah, president of the brokerage firm, said yesterday that "no one has accused the men in this firm of doing anything wrong or of trading on inside information." Bellamah said that at the time of the trading he did "everything I could to make sure we were not acting on inside information," including checking on whether Peacock might have been involved in any way with Santa Fe. "I found that he was not involved," Bellamah said.
At a hearing yesterday, Nugent's lawyer, Warren L. Miller, told Bryant that although Nugent later received $500 from Peacock, Nugent "acted with no intent to profit personally," when he passed on the information. Miller said Nugent cooperated fully with a grand jury investigation into the transactions and that, while Nugent knew the information was confidential, he did not know of the Securities and Exchange Commission rule against disclosing it.
Bryant conducted several lengthy hearings in June at which William E. Timmons and other company officers testified to determine what Nugent knew. No prison term can be imposed for insider trading unless it can be proven that violators are aware of the regulation.
Bryant said yesterday that "after careful review of the record . . . I will accept that he did not know of the rules when he disclosed to Peacock" information regarding the sale of Santa Fe to Kuwait.
The SEC regulations are intended to ensure that people with inside information cannot use that knowledge to buy options that allow them to pay little for the stock they obtain.
In this instance, Santa Fe stock had been selling at about $22 a share in September 1981, just before the takeover, according to the investigation headed by assistant U.S. Attorney Carol E. Bruce and Justice Department attorney Pamela Joy Bethel.
The options were purchased Oct. 1 for about 12 cents a share, or a total of $8,688, and gave holders the right to buy Santa Fe International on the New York Stock Exchange at $30 a share, according to prosecution documents. Santa Fe stock jumped to $44.75 on the first day of trading after the takeover was announced, creating an immediate windfall for the investors when they sold their stock.
The grand jury investigation into the transactions and possible perjury by some witnesses before the SEC is not completed, sources said. Prosecutors yesterday said in filed documents that, while Nugent lied under oath to the SEC in its investigation of the transactions, his subsequent cooperation with the grand jury had been essential to the government's investigation.
Initially, some of the stockbrokers claimed to the SEC that they invested in Santa Fe options merely because they overheard a rumor at a Georgetown restaurant, prosecutors said. But a witness from Bellamah "came forth and literally shattered the already suspect" story, prosecutors said.
Nugent told Bryant he was unemployed and facing bankruptcy and said he was "very ashamed" of his actions. Nugent, visibly shaken and his voice cracking at times, said he wanted to apologize to Bryant and the prosecutors, to his wife and children and to Timmons and his former partners. "I breached a confidence placed in me by very close friends and associates," Nugent said.
Bryant ordered Nugent to pay the fine within one year.