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SEC: Lawyer Made $4.35 Million in Insider Trading in Grand Met Takeover

January 11, 1990

WASHINGTON (AP) _ Federal securities regulators charged a Minneapolis lawyer Wednesday with making $4.35 million in illegal profits by trading on inside information about Grand Metropolitan PLC’s bid for Pillsbury Co.

The Securities and Exchange Commission accused James H. O’Hagan of engaging in the insider trading to repay $1 million he allegedly diverted from client accounts.

But O’Hagan’s lawyer, while admitting O’Hagan borrowed money from client accounts, denied his client engaged in insider trading to pay it back.

The complaint, filed in federal court in Minneapolis, accused O’Hagan of trading Pillsbury securities in 1988 using misappropriated confidential information about Grand Met’s pending hostile tender offer.

O’Hagan at the time was a partner in law firm Dorsey & Whitney, which was local counsel for Grand Met, a British food and beverage producer, in the bid for Pillsbury. Grand Met acquired Minneapolis-based Pillsbury in January 1989.

O’Hagan left Dorsey & Whitney late last February, said Robert Struyk, chairman of the Minneapolis-based law firm.

Struyk said O’Hagan, who specialized in securities, commodities and medical malpractice litigation, had been with the firm since 1963 or 1964. He said Dorsey & Whitney was not involved in the case and had cooperated with the SEC.

William Mauzy, O’Hagan’s attorney in Minneapolis, denied that his client had to trade in Pillsbury options to repay client account funds because his holdings totaled $5 million before he began trading Pillsbury securities.

Mauzy conceded that O’Hagan borrowed money from clients’ accounts and said O’Hagan has been charged with theft by in county court in Minnesota. But he said O’Hagan denied trading on inside information. ″He really didn’t have to make a score in Pillsbury to repay the accounts,″ Mauzy said.

Mauzy also said in a statement that O’Hagan’s acquisition of Pillsbury shares came at the solicitation of various stockbrokers with whom he had dealt regularly, and that the brokers had given affidavits to that effect.

When he learned in September 1988 that Dorsey & Whitney had been approached to act as counsel to Grand Met, he immediately cancelled outstanding orders to purchase options to buy Pillsbury shares, Mauzy’s statement said.

The complaint alleges that O’Hagan learned of the pending Grand Met offer in July 1988 after speaking with another Dorsey & Whitney partner.

According to the complaint, between late July and Sept. 21, 1988, O’Hagan bought Pillsbury stock and call options. On Oct. 4, 1988, Grand Met announced its cash tender offer for Pillsbury at $60 per share, driving up the stock’s price by $20.

Between Oct. 5 and Oct. 17, O’Hagan sold his Pillsbury stock and options, allegedly netting $4.35 million in profits.

The SEC complaint alleged that O’Hagan needed the trading profits to repay about $1 million he had secretly diverted from a client of his law firm, Northrup King Co.

The complaint also alleged that O’Hagan had diverted funds from at least two other clients, which were not identified.

The complaint also said that on Dec. 5, 1989, O’Hagan was temporarily suspended from practicing law by the Minnesota Supreme Court.

Asked if it was unusual for an SEC complaint to go into such detail about the alleged motive for a violation, Harry J. Weiss, an SEC attorney who worked on the case said: ″Keep in mind this case is not settled. The complaint contains all evidence that the commission thinks is relevent.″

The SEC complaint seeks a court order requiring O’Hagan to return the profits from his alleged illegal deal plus fines equal to his profits.

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