Regulators allege Nelson J. Obus, a principal at New York-based hedge fund Wynnefield Capital Inc., traded on an inside tip about an acquisition he received from one of his analysts. The analyst had allegedly received the tip from a college friend at General Electric Capital Corp. , which was exploring acting as a lender in the deal. The GE Capital executive, Bradley Strickland, and Mr. Obus's analyst, Peter F. Black, are also on trial….
In court papers, the defendants, all of whom have denied exchanging or receiving information about the acquisition, have pointed out several peculiarities in that theory. Mr. Obus, for example, waited two weeks to make a trade after allegedly receiving the tip. When Mr. Obus finally did buy a block of SunSource stock, he negotiated a discount and then he sold off some of the shares before the deal closed—unusual behavior for someone who knew the stock was a sure winner, lawyers for the defendants say.
The SEC has offered no evidence that Mr. Strickland benefited from the trade, though there is no dispute that he and Mr. Black discussed SunSource….
The defendants likely will have to surmount testimony by two SEC witnesses, including the chief executive of SunSource, that Mr. Obus told them he had been tipped off about SunSource.
Maurice Andrien, the CEO, told the SEC he spoke with Mr. Obus on the phone before the deal and the hedge-fund manager said "a little birdie told me that you guys are planning to sell the company to a financial buyer," according to court documents.