Bloomberg News

Musicland Investor Teo Must Pay $21 Million in SEC Case

September 15, 2011

(Updates with details of case in third paragraph.)

Sept. 15 (Bloomberg) -- Alfred Teo Sr., a New Jersey plastics manufacturer who went to prison for insider trading, must give up $21 million in profit he made while fraudulently concealing his shares of Musicland Stores Corp., a judge ruled.

U.S. District Judge Susan Wigenton imposed the disgorgement order on Teo, who lost a jury trial May 25 in federal court in Newark, New Jersey, where he contested a civil complaint by the U.S. Securities and Exchange Commission. Teo also is liable for interest and penalties to be calculated by the SEC, she ruled.

Teo began buying Musicland shares in July 1998, using a trust to hide a stake that grew to 36 percent of its stock. In January 2001, Best Buy, the world’s largest consumer-electronics retailer, bought his shares, the SEC claimed. Teo failed to disclose that his Musicland holding exceeded 17.5 percent, which should have triggered an automatic dilution of his shares.

“Disgorgement is appropriate as to both Teo and the trust for all profits gained from the sale of Musicland shares beginning July 30, 1998, that is $21,087,345,” Wigenton ruled Sept. 12.

Teo’s attorney, Eric Corngold of Friedman Kaplan Seiler & Adelman in New York, didn’t immediately return a call seeking comment on the ruling.

In March 2010, Teo agreed to pay $996,783 to cover the profits and interest that the SEC alleged he made through insider trading.

Guilty Plea

Teo pleaded guilty in June 2006 during his insider-trading trial in Newark, admitting he bought Musicland shares based on secret information about the sale of the company to Best Buy. He also pleaded guilty to insider trading when he was a director at Cirrus Logic Ind.

Teo, who had lived in Kinnelon, New Jersey, and Fisher Island, Florida, at first contested the charges. A jury trial was in its seventh week when he pleaded guilty.

In February 2007, Teo was sentenced to 30 months in prison by U.S. District Judge Katharine Hayden, who imposed a $1 million fine.

Teo, who was 60 at the time, was chairman of Lyndhurst, New Jersey-based Alpha Industries Group of companies, a maker of plastic bags and film. The closely held companies employed more than 5,000 people and had $1.2 billion in sales in 2006.

Teo built the business from scratch after coming to the U.S. from China in 1968 with $70. His fortune reached $700 million at one point.

The SEC case is Securities and Exchange Commission v. Alfred S. Teo Sr., 04-cv-1815, U.S. District Court, District of New Jersey (Newark). The criminal case is U.S. v. Teo, 04-cr- 00583, U.S. District Court, District of New Jersey (Newark).

--Editors: Peter Blumberg, Fred Strasser

To contact the reporter on this story: David Voreacos in U.S. District Court in Newark, New Jersey, at dvoreacos@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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