SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16701 / September 14, 2000
Securities and Exchange Commission v. David W. Butler (W.D. Pa., Civil
Action No.00-CV-1827 (DWA))
The Securities and Exchange Commission announced today that it filed a
complaint against David W. Butler, a former vice-president of
Warrendale, Pennsylvania-based Fore Systems, Inc., in the United
States District Court for the Western District of Pennsylvania,
alleging that Butler engaged in illegal insider trading by purchasing
and selling options on the common stock of Fore Systems while he
possessed nonpublic information that Fore Systems was unlikely to meet
its projected revenue for the quarter ending March 31, 1997. Butler,
who now resides in Woodside, California, was a regional vice-president
of sales for Fore Systems until he resigned from the company in
December 1998. Fore Systems, a producer of data transfer systems for
computer networks, was traded on NASDAQ until it was acquired by The
General Electric Company, P.L.C., a British company not affiliated
with the U.S. company of a similar name, in June 1999. The complaint
alleges that Butler derived unlawful trading profits of more than
$364,000 from his options transactions.
The Commission's complaint alleges that Butler purchased puts and sold
calls on Fore Systems common stock on March 17, 1997 and March 24,
1997, almost immediately after participating in confidential
teleconferences with senior executives of Fore Systems who discussed
the fact that the company was unlikely to meet its revenue
expectations of $123 million for the quarter ending March 31, 1997. On
April 1, 1997, Fore Systems publicly announced that its revenue for
the quarter ending March 31, 1997 would be approximately $101 million,
well below stock analysts' expectations. As a result, Fore Systems'
stock price dropped 33 percent, from $15.00 per share to a low of
$10.00, before recovering to $13.06 on the day of the public
announcement. Butler sold his puts immediately following the April 1,
1997 public announcement, netting him a profit of approximately
$304,000 on this transaction alone.
A call option gives the buyer of the call the right to buy the
underlying stock at a specified price within a specified period of
time. If the price of the stock falls during this specified period of
time, the call becomes worthless and the seller keeps the premium
without having to deliver any stock to the buyer of the stock. A put
option provides investors with a method of making money when the price
of the stock falls. A put option is a contract to sell a specified
stock at a future date for a specified price. If the price of the
stock falls below the option price during the period in which the
SNIPPETS:
Securities and Exchange Commission v. David W. Butler (W.D.
The Securities and Exchange Commission announced today that it filed a complaint against
the quarter ending March 31, 1997.
Butler, who now resides in Woodside, California, was a regional vice-president of sales for
The complaint alleges that Butler derived unlawful trading profits of more than $364,000 from
The Commission's complaint alleges that Butler purchased puts and sold calls on Fore Systems
Butler sold his puts immediately following the April 1, 1997 public announcement, netting him
A call option gives the buyer of the call the right to buy the underlying stock at a
If the price of the stock falls during this specified period of time, the call becomes
A put option provides investors with a method of making money when the price of the stock
If the price of the stock falls below the option price during the period in which the option
The complaint seeks permanent injunctive relief, disgorgement of Butler's illegal trading
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