If the federal district court in Manhattan hearing the SEC's civil action approves the settlement, Youngdahl will be permanently enjoined from committing securities fraud, and will pay a civil penalty of $240,000. In separate proceedings regarding the same conduct, Youngdahl today pled guilty to criminal securities fraud charges brought by the United States Attorney's Office for the Southern District of New York.
"The sanctions Mr. Youngdahl has agreed to in our civil action, and his guilty plea, send a clear message," said Stephen M. Cutler, Director of the SEC's Division of Enforcement. "If we catch you trafficking in or trading on confidential information that could affect the market for any security, you will pay a substantial price. This is true whether the securities are stocks or bonds, and it's true whether the securities are issued by the federal government or by a public company."
The Commission's complaint, filed on Sept. 4, 2003, alleges that beginning in 1994 Peter J. Davis, Jr., a Washington, D.C.-based consultant and sole proprietor of Davis Capital Investment Ideas, attended the Treasury Department's quarterly refunding press conferences. At these press conferences, the Treasury Department announced the Federal Government's financing requirements for the coming quarter. This information was market-sensitive and thus subject to a press embargo; that is, it could not be disseminated by those attending the conference until a specified time. The complaint alleges that Youngdahl, who advised Treasury Desk traders on economic and political developments, was Davis' primary contact at Goldman Sachs, and that Davis conveyed confidential refunding information to Youngdahl in May 2001. In July 2001, Davis and Youngdahl agreed in a series of e-mails that Davis would provide Youngdahl with embargoed information from the refunding press conferences. Pursuant to this agreement, Davis again provided Youngdahl with embargoed information in August 2001.
The complaint further alleges that, at the Oct. 31, 2001, refunding press conference, Treasury Department officials announced three times that the information being made available was embargoed until 10:00 a.m. The press conference ended at approximately 9:25 a.m. Despite the officials' warnings, beginning at 9:28 a.m., Davis placed a series of cell phone calls to his clients, including Youngdahl, and told them that the Treasury Department was suspending future long bond issuances. The complaint alleges that Youngdahl knew that Davis, pursuant to their July agreement, was tipping him with confidential Treasury Department information before the information was released to the public. The complaint further alleges that, after receiving Davis' call on the morning of Oct. 31, 2001, Youngdahl tipped traders on Goldman Sachs' U.S. Treasury Desk to the news about the Treasury's decision to cease issuance of the long bond. While the news was still nonpublic, the traders purchased $84 million worth of 30-year bonds for Goldman Sachs' own accounts, generating illegal profits of over $1.5 million.
Youngdahl has consented, without admitting or denying the allegations of the complaint, to the entry of a permanent injunction against future violations of Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and a court order that he pay a fine of $240,000 and be jointly and severally liable for disgorgement of Goldman Sachs' trading profits.
Goldman Sachs has previously settled a Commission administrative proceeding related to this matter and made full disgorgement of its trading profits. Davis, originally a defendant in the civil action, has also previously settled with the Commission.
The Commission's investigation into these events is continuing. Pending the completion of that investigation, the Commission has filed a notice of dismissal as to defendant Stephen E. Nothern. Nothern was the only remaining defendant in this action other than Youngdahl. Under Federal Rule of Civil Procedure 41(a)(1), the Commission retains the right to file charges again against Nothern based on or including the original claim.
The Commission has investigated this matter in coordination with, and acknowledges the cooperation and assistance of, the United States Attorney's Office for the Southern District of New York. The Commission also acknowledges the cooperation and assistance of the Commodity Futures Trading Commission, the United States Department of the Treasury, the Federal Reserve Bank of New York, and the United States Postal Inspection Service throughout this investigation.
