NEWARK, N.J. (Sept. 20, 4:55 p.m. ET) — Alfred Teo Sr., chairman and CEO of blown film extruder Sigma Plastics Group, has been ordered to pay $21 million in the Securities and Exchange Commission's civil lawsuit involving shares of Musicland stock.
Teo will appeal, his lawyer said in a Sept. 20 telephone interview. The opinion was handed down Sept. 12 by Judge Susan Wigenton in the U.S. District Court in Newark, N.J.
“We intend to appeal and we believe that we will be successful,” said Mary Mulligan with Friedman, Kaplan, Seiler & Adelman LLP in New York.
In 2007-2008, Teo served an 11-month stint in federal prison after he was convicted of criminal charges of securities fraud. The latest ruling is the result of a civil lawsuit filed by SEC related to the insider trading allegations.
The SEC originally filed its complaint against Teo in 2004. Teo, the SEC alleged, was the beneficial owner of stocks of Musicland Stores Corp. held by a trust known as MAAA Trust. According to court filings, the MAAA Trust was established in 1992 for the benefit of Mark, Andrew, Alan and Alfred Jr., Teo's sons.
Teo at one point held 35.97 percent of Musicland stock, but during the period of ownership he reported a lower percentage of ownership and also failed to disclose his beneficial ownership of stock held by the trust.
The $21 million comes about after calculations involving purchase amounts and profits. The original cost of the Musicland shares for Teo was $89.5 million. Gross proceeds were $154.9 million, leaving a profit of $65.4 million, according to court documents.
Teo's first inaccurate filing was on July 2, 1998, when he disclaimed beneficial ownership of the stock held by the trust. This action prompted the SEC to seek to disgorge profits for trades happening shortly thereafter. In profits after Teo's initial alleged violation, $8.1 million is due to trading in the trust's accounts and $13 million is due to other accounts Teo controlled. Now, the SEC wants disgorgement of $21 million, which is the profit gained after July 30, 1998. The SEC also wants permanent injunction issued to prevent further violations by Teo.
Teo allegedly failed to disclose plans and proposals for an extraordinary corporate transaction related to Musicland and plans and proposals to change Musicland's board of directors. In essence, Teo wanted to take Musicland private and also wanted to make changes to its board of directors.
Teo and the trust are being held liable in this case. Officials have emphasized that the Musicland case in no way involved Sigma Plastics and it does not affect or impact the business.