On August 12, 2019, the Securities and Exchange Commission charged Harsh Nahata, a former WestRock Corporation employee, and his friend, Ajay S. Bhandari, with trading ahead of the announcement of WestRock’s acquisition of KapStone Paper and Packaging Corporation, on the basis of material, nonpublic information that Nahata obtained in the course of his employment.
The SEC’s complaint alleges that Nahata, who was employed as a manager in WestRock’s corporate development group, initially purchased Kapstone stock in October 2017, after preparing for the WestRock Board of Directors a valuation analysis of KapStone in connection with the possible acquisition. The complaint further alleges that, in January 2018, after learning that the deal was “hot,” Nahata purchased additional shares of Kapstone stock in his own account and in an account he opened in his brother’s name, and around the same time, tipped Bhandari, who subsequently traded in the stock. As alleged in the complaint, Nahata and Bhandari sold their KapStone shares immediately after the acquisition was publicly announced, realizing over $38,000 and $22,000, respectively, in ill-gotten gains.
The SEC’s complaint, filed in federal district court in the Northern District of Georgia, charges Nahata and Bhandari with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks a permanent injunction, disgorgement of ill-gotten gains, prejudgment interest, and civil monetary penalties against each of them. The Commission has accepted Bhandari’s offer to consent to a final judgment, without either admitting or denying the allegations, enjoining him from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, ordering him to disgorge $22,426 in trading profits, pay a civil penalty in the same amount, and pay prejudgment interest of $1,233, for a total of $46,085. The settlement is subject to court approval.
The SEC’s investigation, which is continuing, has been conducted by Michael F. McGraw and Brendan P. McGlynn in the Philadelphia Regional Office, with the assistance of John S. Rymas of the Market Abuse Unit’s Analysis and Detection Center. The litigation will be led by Jennifer C. Barry and John V. Donnelly III.