Morris Manning & Martin, LLP

U.S. Court Rejects Insider Trading Charges Against Schvacho


“Total Vindication” for MMM Client Who Faced Unfounded SEC Allegations

Atlanta (Jan. 9, 2014) ─ The U.S. District Court for the Northern District of Georgia this week ruled in favor of Larry Schvacho in a high-profile and potentially precedent-setting insider trading case the U.S. Securities and Exchange Commission (SEC) originally filed in July 2012. Judge William S. Duffey, Jr.’s opinion, handed down late Tuesday, criticized what he described as the SEC’s “overreaching, self-serving interpretation” of evidence.

“The court ruled for Mr. Schvacho on every contested point,” said Morris, Manning & Martin, LLP. “We pointed out to the SEC these very same problems with its version of the facts multiple times, long before the case was even filed. It should never have gone to court. The judge repeatedly noted the obvious gaps and contradictions in the SEC’s theory of the case, and specifically found that both the testimony of Mr. Schvacho and Larry Enterline, the alleged source of inside information, was credible. The fact that such an experienced and well-respected judge has ruled in Mr. Schvacho’s favor is extremely gratifying. Justice was served.”

In charges rejected in Tuesday’s opinion, the SEC had alleged that Schvacho made more than $500,000 dollars in improper profit from trading stock in Comsys IT Partners before a merger announcement in February 2010. The SEC further alleged that he learned of the upcoming transaction from a close friend, then-Comsys CEO Larry Enterline. The judge ruled that the SEC relied on unconvincing circumstantial evidence, adding that it was “implausible” that Enterline, “a business professional with an unblemished history of leadership in the private sector,” placed phone calls about the merger so Schvacho could overhear them.

“The Court finds that the circumstantial evidence that the SEC offered at trial is insufficient to prove . . . that Schvacho possessed material, nonpublic information about Comsys and used such information to trade in Comsys stock…” Judge Duffey wrote. The court further noted “the complete absence of any testimony of the content of any conversation or communication between Enterline and Schvacho to support any exchange of inside information to Schvacho.” 

“I’m gratified that the case has been resolved in my favor,” Schvacho said after the judgment. “The court’s opinion amounts to a total vindication. I am grateful that Judge Duffey took the time to carefully sift through the evidence and to categorically reject the SEC’s unfounded and false allegations.” Schvacho added, “My experience demonstrates serious flaws in the way the SEC approaches some of these highly-questionable cases. They have the use of virtually unlimited taxpayer money, and if they lose there are no negative consequences ─ there’s zero accountability on the part of the SEC. Consequently the SEC has no incentive for fair treatment.”

Schvacho added that he would have no further comment.


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