SEC Enforcement Action Against Four Insiders For Insider Trading On Dean Foods Suiza Foods Merger

SEC NEWS DIGEST
Issue 2004-149 August 4, 2004

On August 3, the Commission filed a settled complaint against Michael J.
McCloskey, Rance C. Miles, Luis E. Vallejo and Daniel Harris for
engaging in insider trading in the securities of Dean Foods Company
(Dean Foods) in advance of the April 5, 2001, announcement that Suiza
Foods Corporation would merge with Dean Foods. The Commission's
complaint, filed in the U.S. District Court for the District of
Columbia, alleges that McCloskey and Miles were officers of a dairy
business that had entered into a confidential milk supply contract with
Dean Foods in early 2001. According to the complaint, McCloskey and
Miles obtained material nonpublic information from Dean Foods which they
used to purchase Dean Foods securities the day before the Dean Foods-
Suiza Foods merger announcement and to tip others including Vallejo,
McCloskey's long-time friend, and Harris, Miles' broker. Collectively,
the four defendants realized illegal profits totaling $113,801.

The Commission alleges that McCloskey and Miles received the last piece
of material nonpublic information on April 4, 2001, when they were given
the "green light" to make public their previously confidential milk
supply agreement. McCloskey, in light of this and other information
known to him, concluded that this meant the Suiza Foods-Dean Foods
merger was "coming down." After receiving the information, McCloskey
purchased 3,000 shares of Dean Foods stock on margin for $97,500.
McCloskey also tipped others, including his long-time friend Luis
Vallejo. Vallejo purchased 7,000 shares of Dean Foods stock the same
day for $229,170. According to the complaint, Miles also purchased 500
shares of Dean Foods stock and 250 out-of-the-money call options
contracts for $43,050 after receiving the information about the "green
light" from McCloskey. Miles also tipped others, including his broker,
Harris. Harris purchased 100 shares of Dean Foods stock for $3,259. He
also tipped one of his clients, recommending that he sell short Suiza
Foods stock.

After the public announcement of the merger on April 5, 2001, Dean Foods
stock increased from its April 4, 2001 close of $32.50 to as high as
$38.80 on April 5, 2001, or a 19% increase. Following the announcement,
the four individuals sold their Dean Foods securities and realized
substantial illegal profits. McCloskey sold his stock on April 5, 2001,
realizing one-day illegal profits of $15,900. Miles sold his Dean Foods
stock and options between April 5 and April 11, 2001, earning illegal
profits of $60,530. Vallejo sold his stock on April 5, 2001, earning
$36,830 in illegal profits. Harris sold his stock on April 5, 2001,
realizing one-day profits of $541. McCloskey, Miles, and Harris each
tipped others. Collectively, the tippees (other than Vallejo) earned
$10,799.05.

Simultaneous with the filing of this action, the Commission has agreed
to accept the individuals' offers to settle this matter. Each of them
has agreed, without admitting or denying the allegations in the
complaint, to the entry of a final judgment permanently enjoining them
from future violations of Section 10(b) of the Securities Exchange Act
of 1934 and Exchange Act Rule 10b-5. In addition, McCloskey has
consented to pay $92,730.45, representing full disgorgement of his
illegal profits and his tippees' profits (except Vallejo) in the amount
of $25,930.65, prejudgment interest of $4,039.15, and a one-time civil
penalty of $62,760.65 on his own profits and those of his tippees.
Miles has consented to pay $133,311.34, representing full disgorgement
of his and his tippees' illegal profits of $61,839.40, prejudgment
interest of $9,632.54, and a one-time civil penalty of $61,839.40 on his
own profits and those of his tippees. Vallejo has consented to pay
$79,396.62, representing full disgorgement of his illegal profits of
$36,830.00, prejudgment interest of $5,736.92, and a one-time civil
penalty of $36,830.00. Harris has consented to pay $624.00,
representing one dollar in disgorgement and a one-time civil penalty of
$623 on his own profits and those of his tippee. In addition, Harris
has agreed, based upon the anticipated entry of the injunction in this
matter, to a Commission Order barring him from association with any
broker or dealer with the right to reapply after two years.

The Commission also would like to acknowledge the assistance of the
Pacific Exchange in this matter. [SEC v. Michael J. McCloskey, Rance C.
Miles, Luis E. Vallejo and Daniel Harris, Case No. 1:04CV01294, D.D.C.]
(LR-18819)