SEC Accuses Three in 1988 Kraft-Philip Morris Deal
Jun. 10, 1991
NEW YORK (AP) _ Federal securities regulators Monday accused a Philip Morris Cos. employee and two stockbrokers of using advance information about the company's 1988 takeover bid for Kraft Inc. to make $300,000 in illegal profits.
The civil complaint alleges that Anthony M. Morelli, director of headquarters at Philip Morris offices in New York, learned about the planned offer while conducting security checks of a Philip Morris boardroom.
The SEC alleges that Morelli, 52, of Englishtown, N.J., then passed on the information to his son-in-law, Frank S. Petrone, 29, who in turn told a fellow stockbroker, James Zanengo, 30.
The lawsuit, filed in U.S. District Court in Manhattan, said the two stockbrokers made profitable stock trades pegged to the planned $90-a-share tender offer for Kraft stock before and after a game of golf.
Petrone and Zanengo both live in Berkeley Heights, N.J., and were stockbrokers at the firm of Rickel & Associates in Millburn, N.J.
Lawyers for accused said they would fight the charges. ''I don't think they have a certain amount of evidence beyond coincidence,'' said Edward Rubin, an attorney for Zanengo.
''The allegations aren't true,'' said Robert Fogelnest, Petrone's lawyer. ''There was no improper trading.''
The SEC claims are based on the principle that Morelli violated a duty to Philip Morris by allegedly passing on non-public information about the company's plans to acquire Kraft, and that the other two men knew or had reason to know the information was not public.
Philip Morris late in the afternoon of Oct. 17, 1988, publicly announced the takeover bid for Kraft. The announcement, made after the stock exchange closed, the next day pushed up the price of Kraft stock to $88.50 from $60.12 .
Philip Morris later that year completed the takeover for $106 a share. The $12.9 billion deal at the time was the third largest corporate takeover.
The SEC claims that Morelli early on Oct. 17 supervised a security sweep for wiretaps of a Philip Morris boardroom before a meeting to discuss the planned bid and at some point learned about the company's takeover plans.
The lawsuit does not state specifically when or how Morelli came across the information about the Kraft bid.
Around noon that day, the SEC claims, Morelli called Petrone, who immediately bought $4,425 worth of options to purchase Kraft stock sold later that month at a $104,000 profit. Petrone told Zangeno, the SEC alleges, who also purchased some Kraft securities.
Those trades were made while the two men were en route to play golf, the SEC claimed. The lawsuit states that Zanengo called two other brokers, who are not charged, from the golf course to place more orders for Kraft securities.
The SEC is seeking the return of $333,974.97 in alleged illegal trading profits from the three men, plus civil penalties of up to three times the alleged illegal gains.
Philip Morris declined through a spokeswoman to comment on the case.