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SEC’s Insider-Trading Case Against Obus Revived on Appeal

An appeals court revived an insider-trading lawsuit against hedge-fund manager Nelson Obus brought by the U.S. Securities and Exchange Commission.

A three-judge panel of the U.S. Court of Appeals in Manhattan today reversed a lower court’s dismissal of the case against Obus, the president of Wynnefield Capital Inc.; Thomas Strickland; and Peter Black.

The SEC alleged that Obus used a tip from Strickland, then at General Electric Capital Corp., to buy stock in SunSource Inc. for three hedge funds he controlled. Strickland had given the tip in May 2001 to his friend Black, an analyst at Wynnefield, that SunSource would be acquired by Allied Capital Corp., according to the SEC.

The district court relied on an internal investigation by GE Capital showing that Strickland hadn’t breached a duty to his employer by sharing information with Black. The appeals court found that evidence might show otherwise.

“The GE investigation was motivated by corporate interests that may or may not coincide with the public interest in unearthing wrongdoing and affording a remedy,” U.S. Circuit Judge John Walker Jr. wrote for the appeals court.

“We are obviously disappointed by this ruling,” said Joel Cohen, a lawyer for Obus, in an emailed statement. “For over ten years, Mr. Obus and Wynnefield Capital have refused to settle this lawsuit as a matter of principle. The facts remain the same: the lawsuit is baseless.”

A lawyer for Black, Mark Cohen, who isn’t related to Joel Cohen, didn’t immediately return a call seeking comment on the ruling.

“We wish the result had been different, but we remain confident that in the long run we will prevail,” Roland Riopelle, a lawyer for Strickland, said in a phone interview.

The case is SEC v. Obus, 10-4749, U.S. Court of Appeals for the Second Circuit (Manhattan).

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