Financial analyst faces SEC complaint CMP worker resigns, denies agency’s allegations of insider trading of company stock

BANGOR – The Securities and Exchange Commission on Thursday filed a complaint in U.S. Federal District Court in Bangor which alleges that a Central Maine Power Co. financial analyst engaged in insider trading by investing in CMP stock the day before it was announced the company would merge with Energy East Corp.

The complaint alleges that David M. Brooks, age unknown, of Winthrop profited by more than $21,000 after moving funds from his 401(k) retirement plan to the company’s stock fund. Reached for comment Thursday, Brooks denied having done anything illegal and added that the matter was the result of “unfortunate timing.”

Madeleine McGrath Blake, assistant district administrator for the SEC, said Thursday that her agency files many such complaints each year. The agency may only file civil complaints, McGrath Blake said, adding that the agency is seeking to recover the earnings Brooks made through the deal as well as three times that amount as a penalty.

According to a statement issued by the SEC, Brooks was called into work on a Sunday in June 1999 to provide financial information to CMP’s coordinator of financial communications. While at his office that day it is alleged that Brooks made note that a number of senior CMP executives were present and told his supervisor he thought CMP must be planning to make a public announcement.

Upon his return to work the next day, Brooks is alleged to have ordered a transfer of half of his 401(k) assets – about $80,000 – to the company’s stock fund.

That order, the SEC contends, was in direct contradiction to an order he had given the prior Friday to remove all of his assets from the company’s stock fund.

On June 15, 1999 – one day after the order to place his assets in the stock fund – CMP announced its merger with Energy East and the price of CMP stock rose 28 percent.

McGrath Blake said Thursday she couldn’t comment on how the activity was identified or on the progress of the investigation, but added that Brooks had used information unavailable to other investors as the basis of his investments. “He learned pieces of material, nonpublic material,” McGrath Blake said, “and used that together with information that was out in the public domain.”

Brooks, speaking from his home Thursday night, said he has lived through 18 months of “terrible stress” because of the SEC investigation. He added that he didn’t become aware of the pending merger before it was announced, and that the information he was asked to supply CMP supervisors that Sunday was routine. He also disputes SEC claims that he discussed a possible public announcement with CMP officers.

Brooks said he has been cooperative with the SEC – supplying them with all information about the alleged illegal trade. Brooks said he made the trade because he had become concerned that the stock market was generally overvalued and he believed CMP stock was trading below its true value. Brooks said he tried to execute the trade Friday before the merger but the transaction was denied by a Fidelity Investments fund manager because it was too late in the day. The trade was then executed the next business day – the day before the merger was announced.

Brooks said he resigned his position at CMP on Thursday after being informed of the filing by the Bangor Daily News. He said he’s already spent more than $21,000 on his legal defense, and is fighting the charges because he says he hasn’t done anything illegal.

In fact, Brooks said the SEC offered him a $3,000 settlement on Thursday but turned it down because he wants to prove his innocence. “The most distressing thing is that my co-workers and friends may believe these allegations,” Brooks said. The filing in U.S. District Court, Brooks said, is an attempt to force him to settle the case.

The SEC is seeking an order preventing Brooks from engaging in such activities in the future, as well as the return of profits made on the investment. In addition, the agency is seeking a monetary penalty of up to three times the amount of his profits. A trial date has yet to be scheduled.