SEC charges Watts Horne with insider trading

NORTH ANDOVER, MASS. The Securities and Exchange Commission has filed a complaint against Timothy P. Horne, former chairman and chief executive officer of Watts Industries, for alleged insider trading. The SEC claims that Horne made a profit of more than $300,000 by trading the stock of Central Sprinkler Corp. shortly before Tyco International acquired it in May 1999. Horne is a director of Watts.

NORTH ANDOVER, MASS. — The Securities and Exchange Commission has filed a complaint against Timothy P. Horne, former chairman and chief executive officer of Watts Industries, for alleged insider trading. The SEC claims that Horne made a profit of more than $300,000 by trading the stock of Central Sprinkler Corp. shortly before Tyco International acquired it in May 1999.

Horne is a director of Watts. Patrick S. O’Keefe, who was previously president and CEO of Industrial Distribution Group, replaced him as CEO in August.

Horne announced his plans to retire on June 20.

The SEC complaint, filed in U.S. District Court for the District of Massachusetts, alleges that Horne received a call in May 1999 from an investment banker inquiring whether Watts Industries would be interested in acquiring Central Sprinkler, indicating that an auction process was underway and Watts would need to move quickly if interested. According to the complaint, Horne said that Watts might be interested in acquiring Central Sprinkler and agreed to receive the confidentiality agreement Watts would need to execute to receive more detailed information about Central Sprinkler.

The complaint alleges, however, that Horne did not inform the Watts board of this acquisition opportunity and instead began buying stock of Central Sprinkler in his personal brokerage account, spending more than $500,000 to accumulate 30,000 shares over the next three business days.

According to the complaint, Horne never informed anyone at Watts of his trading, which violated a Watts written policy prohibiting trading in any company’s securities on the basis of nonpublic information. Shortly thereafter, when Tyco publicly announced its acquisition of Central Sprinkler, Horne sold his stock for a profit of $317,971.

Horne has told the Watts board of directors that he has cooperated with the Securities and Exchange Commission staff and that he has meritorious defenses to any such actions and intends to defend himself vigorously.

According to the complaint, the Central Sprinkler board of directors was told that Tyco was interested in buying it. The board instructed its investment banking firm to get comparative bids.

The SEC complaint alleges that on May 11, 1999, Peter Hicks, a representative of investment bank Schroders & Co., called Horne to inquire confidentially whether Watts would be interested in acquiring Central Sprinkler. Horne responded that Watts might be interested and agreed to receive a confidentiality agreement concerning the proposed transaction.

According to the complaint, Horne had previously worked with Schroders on potential acquisitions and Watts was a supplier to Central Sprinkler.

The confidentiality agreement arrived the next day, but Horne did not inform Watts’ board of directors about the potential acquisition, the SEC alleges. Instead, on May 13, 1999, without informing anyone at Watts and in disregard for Watts’ policy against insider trading by its officers, he began buying Central Sprinkler stock in his personal brokerage account, acquiring a total of 30,000 shares in three days for approximately $17 per share, according to the complaint.

On June 16, 1999, Central Sprinkler announced that it was going to be acquired by Tyco International for $30 per share. The price of Central Sprinkler stock immediately jumped 26%. Three weeks later, the SEC charged, Horne sold all his Central Sprinkler stock for about $28 per share, realizing a profit of approximately $318,000.

According to the complaint, Horne’s explanations in the course of the investigation of why he purchased Central Sprinkler stock were “misleading” and “implausible.”

The SEC is asking the court to order Horne to relinquish his profits from the stock trades, pay a penalty of up to three times the profit, and to bar Horne from serving as an officer or director of any publicly trade company.