Fed. Sec. L. Rep. P 91,576 Securities and Exchange Commission v. James H. Randolph, Jr., and Charles Blackard

The Securities and Exchange Commission brought an action against James H. Randolph and Charles Blackard alleging violations of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. 240.10b-5, for illegal insider trading. Simultaneous with the filing of the complaint, the parties filed a proposed consent decree. The district court, 564 F.Supp. 137 , rejected the proposed decree and dismissed the action. We reverse.

I. BACKGROUND

On October 5, 1981, a merger between Santa Fe International Corporation (Santa Fe) and Kuwait Petroleum Company (Kuwait) was announced. Kuwait’s $51 per share tender offer caused the value of Santa Fe stock to rise from $24.75 on October 1 to $43.75 on October 6.

The SEC soon began an investigation into alleged insider trading in Santa Fe stock. Its investigation led it to believe that numerous individuals, including the defendants, traded on non-public insider information and reaped sizeable gains after the Kuwait offer for Santa Fe was announced. The purchase of call option contracts was one of the methods used to secure the greatest returns. Call options are highly speculative agreements in which the buyer…