Facts

Mark Loman is the former Controller and Vice President of Finance of OSI Systems, Inc. (OSI), a Hawthorne, California based security, healthcare, and optoelectronics company. He was primarily responsible for compiling and internally reporting OSI's financial results. Based on materially reduced actual revenues, in early December 2015, OSI revised its internal revenue projections for the second fiscal quarter from $241 million to $218 million and reduced its internal revenue projections for the fiscal year from $1,093 million to $995 million. On December 28, Loman made a series of options trades, including purchasing 100 put options and 100 call options, betting that OSI's stock price would fall. In January 2016, OSI publicly announced the disappointing quarterly financial results and its stock dropped 35%. A few days later, Loman sold his options trades and realized more than $300,000 in profits. In February 2016, OSI was in negotiations to acquire American Science and Engineering (ASEI). On March 3, 2016, Loman bought 10,000 shares of ASEI stock. The morning that the acquisition was publicly announced on June 21, 2016, Loman sold his shares and realized more than $100,000 in profits. On July 19, 2019, the Securities and Exchange Commission filed a complaint against Loman, alleging violations of the Securities Exchange Act of 1934. In a parallel criminal action filed November 21, 2019, a jury found Loman guilty of four counts of securities fraud and four counts of insider trading. Loman was sentenced to 35 months in prison and ordered to pay a $600,000 fine.

PLAINTIFFS' CONTENTIONS: Plaintiff argued that defendant used confidential information he gained from his position at OSI that he knew or was reckless in not knowing was non-public and material to unlawfully trade securities. Plaintiff contended that defendant knew OSI was going to fall far short of its revenue and earnings expectations in the last quarter of 2015 and just days before the end of the quarter, made options trades betting that OSI's stock would go down in price. Two months later, Loman learned confidential non-public information that OSI was in negotiations to acquire ASEI at a premium over the market price. He utilized this information to purchase ASEI shares and realize a $100,000 profit. Moreover plaintiff alleged that Loman acted deceptively and sought to conceal his trading by not using the brokerage account that OSI set up for him.

DEFENDANT'S CONTENTIONS: Defendant denied all contentions.

Result

Defendant agreed to pay $482,050, was permanently enjoined from violating antifraud provisions of Section 10(b) of the Securities Exchange Act, and barred from serving as an officer or director of a public company.