Putting too much stock in one's company can be a bad idea, as Robert K. Gasper and James D. Fairfield found out the hard way.
The former employees of Central Maine Power Co. were charged with insider trading by the Securities and Exchange Commission for transferring all of their 401(k) balances into a CMP stock fund the day before the firm announced plans to merge with Energy East Corp. on June 15, 1999.
Mr. Gasper, who invested $336,528 in CMP stock, made an illegal profit of $88,604 and Mr. Garfield, who invested $304,556, made an illegal profit of $80,186, the SEC charges. Under a settlement with the SEC, they agreed to return the illegal profits, but a portion of that was waived because of their inability to cough up the entire amount. Mr. Gasper will pay $65,000, and Mr. Fairfield, $30,000.
The SEC's lawsuit charged that Mr. Gasper first learned about the planned merger in late April or early May 1999. He was asked to retrieve information for a "top secret" project and assumed someone was "looking at the company." After learning that a highly unusual meeting had been scheduled for late in the day on June 14, Mr. Gasper concluded that an acquisition announcement was imminent and transferred all his 401(k) balance into company stock. He also tipped off Mr. Fairfield, who then executed a similar trade.