Two years ago, Keith J. Kim, head of Brainrush Inc., an incubatorof Internet start-up companies, was aboard a small private planeheaded for Snowmass, Colo., when he learned something interesting.
Kim was among a group of high-tech corporate officials scheduledto attend a meeting of the Young Presidents Organization, and it nowseemed that one CEO wasn't going to make it because his company wasin negotiations to be acquired.
This fact was so interesting, the Securities and ExchangeCommission and the U.S. Attorney's Office in San Francisco chargedyesterday, that upon landing Kim quickly called his brother-in-law inOakland and asked him to buy stock in Meridian Data Inc., the targetcompany. And over the next three days, while Kim was at Snowmass,seven purchase orders were placed, buying 187,300 shares of Meridianfor $583,110.65, court papers said.
Members of YPO, an organization of corporate presidents and CEOsunder 50 who meet frequently to discuss business and personalmatters, are bound to keep confidential anything they hear at thesesessions.
At the retreat, the potential merger between Meridian and QuantumCorp., both makers of computer storage products, was discussed, andthe participants even got a telephone update from Meridian's CEO, whosaid he expected the stock to climb to $10. It was then trading atabout $2.50.
After the call, the group discussed whether it would be illegalinsider trading to buy Meridian stock, the SEC complaint states, andone member warned the others "Do not trade," saying "You do not lookgood in orange" -- the color of prison overalls.
Nonetheless, another order of 100,000 was executed on behalf ofKim, and he also tipped his friend and business associate Douglas K.Park, who in turn tipped his brother William I. Park. Soon otherfriends and relatives were clued in, the SEC said.
Meridian's stock climbed to $7.56. Kim reaped a profit of$832,877.35, the SEC said, and the Parks made more than $500,000between them.
The SEC charged Kim and the Parks with insider trading and othersecurities violations. It said Kim owed a fiduciary duty to YPO andmisappropriated material nonpublic information and the others knew orshould have known that he had. Kim was arrested yesterday after acriminal complaint was filed by the U.S. Attorney's Office. He wasreleased on $400,000 bail, officials said.
Kim did not respond to voice and e-mail messages at his office. Acall to his attorney was not returned. The Parks' attorney, WilliamGoodman, said he had just learned of the complaint and could notcomment.
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