A former corporate executive was recently sued by the SEC for insider trading based on information he learned during meetings of the World Presidents’ Organization (“WPO”). Mark Begelman, who lives in Florida, is no stranger to corporate governance. Begelman was the President and COO of Office Depot in the early 1990s. He also built a large chain of music superstores called Mars Music which went out of business in late 2002. But Begelman rebounded. From 2005 to 2007, he was an officer of BankAtlantic Bancorp. Then, in December 2011, he was named vice-chairman of Canyon Creek Food Company, Ltd. which markets its prepared foods with catchy slogans such as “Fresh is Best” and “It’s Like Cooking From Scratch.”
According to the SEC’s complaint, Begelman had been a member of the WPO and a WPO subgroup called “Forum 91” from 1991 to 2013. The WPO was “designed to provide presidents of companies with a confidential setting in which to exchange ideas and receive advice regarding business and personal issues.” The WPO and Forum 91 were based on a culture of confidentiality and breaching that confidentiality would lead to “expulsion from the Forum.” Forum 91 members met monthly for dinner and also had yearly retreats. Sounds nice, huh? Let’s see if the government thought it was all fun and games.
Another member of Forum 91 was the “Insider,” according to the SEC. The complaint does not name this mysterious person but he was a “high ranking executive” of two companies engaged in merger discussions in late 2011. The acquiring company was BFC Financial Corporation and the company being acquired was Bluegreen Corp. Bluegreen develops timeshare resorts. (I had no idea anyone actually bought into the timeshare scam anymore but apparently they still do.)
The SEC alleged that the Insider and the BFC board held non-public discussions about acquiring Bluegreen between August and early November 2011. From November 1 to November 3, 2011, the Forum 91 members met for their annual retreat in the Florida Keys. The SEC doesn’t specify whether the conversation between Begelman and the Insider happened on the golf course or during after-dinner cigars, but “Begelman obtained information from the Insider during the retreat that BFC was planning to merge with Bluegreen.” On November 2, Begelman, while still enjoying the Florida Keys, found time to email his stock broker to buy 25,000 shares of Bluegreen. The two companies entered issued a press release about the merger on November 14. Bluegreen’s shares shot up 46% that day. Begelman sold his shares that day too, profiting by a measly $14,949.34.
Begelman has settled the case. He did not admit or deny liability but agreed to disgorge his $14,949.34 in gains and pay a penalty of the same amount, pay $377 in interest and agreed to an officer and director bar for five years. The settlement is awaiting court approval.
The stakes of the case, money-wise, are minuscule. But it’s an interesting peephole into how easily corporate executives could obtain material information they could use for insider trading. Notably, the SEC has not sued the Insider (suggesting he was not a knowing participant in any wrongdoing), nor does the complaint express serious concern about a group of apparently powerful corporate executives getting together to “routinely share[] personal and professional confidences, including material, non-public information.” Given the wiretaps used in recent insider trading cases, though, WPO better start patting down its members before they tee off.
The case is SEC v. Begelman, No. 9:13-cv-80396 (S.D. Fla.).