LEWIS A. KAPLAN, District Judge.
This is a civil action brought by the Commission against a number of individuals for alleged insider trading in securities of Lotus at or about the time of a takeover bid for Lotus Development Corp. ("Lotus") by IBM Corporation ("IBM"). See generally SEC v. Cassano, 61 F. Supp. d 31 (S.D.N.Y. 1999). A number of defendants have moved for summary judgment dismissing the complaint or for other relief. The motions may be disposed of summarily.
1. Defendants James V. Ribellino, Jr., Ralph Serpe and Gerald Wells, friends and business associates (the "Ribellino Defendants"), seek summary judgment on the ground that the Commission's evidence against them is purely circumstantial and insufficient to warrant a trial Viewing the evidence in the light most favorable to the Commission, it establishes that IBM had taken substantial steps to make a tender offer for Lotus by June 1, 1995, that an IBM secretary named Lorraine Cassano knew of the planned tender offer, that Mrs. Cassano tipped her husband to the plan, that Mr. Cassano tipped Jerry Mazzone and asked him to buy Lotus stock for him because it would not "look good if he bought it in his name, being that his wife works for IBM," that Jerry Mazzone repeated what Mr. Cassano has told him to Richard Cofrancesco, that Cofrancesco spoke to the Ribellino Defendants about Lotus, and that the Ribellino Defendants shortly thereafter purchased Lotus options. The pivotal question is whether the evidence suffices to permit the inferences that the Ribellino Defendants traded on material inside information and that they did so knowing, or having reason to know, of its insider nature. They deny both, and Cofrancesco took the Fifth Amendment to avoid answering questions concerning his exchange with the Ribellino Defendants.
If the foregoing were the sum total of the Commission's evidence, this might be a close call. But it is not, as there is substantial additional evidence that suggests insider trading and knowledge of guilt. For one thing, two of the three Ribellino Defendants never had purchased options before and the third had done so most sparingly, thus indicating that this was a very unusual situation. Ribellino himself falsely claimed that his broker had brought Lotus to his attention during the month prior to the purchase and had been discussing it for weeks, all of which has been denied by the broker. Moreover, following the commencement of the Commission's investigation, Ribellino visited his broker and requested copies of articles relating to Lotus that predated his purchase, conduct the trier would be entitled to conclude evidenced a post hoc attempt to concoct a false story to justify the Lotus purchases. Finally, the broker testified that Serpe bragged to him after the fact that the purchases had been made based on a rumor from a Siemens employee (i.e., Cofrancesco), thus supporting the inference that Cofrancesco repeated what he had learned indirectly from Cassano. Quite plainly, there are genuine issues of material fact that preclude summary judgment in favor of the Ribellino Defendants.
2. Defendants Tribiano, Scipioni and DeTommasso, all stock brokers at Russo Securities (the "Russo Defendants"), also seek summary judgment dismissing the claims against them on similar grounds, viz. that there is insufficient evidence that they knowingly traded on inside information to warrant a trial.
The trail of alleged tips in the case of the Russo Defendants is identical to that involving the Ribellino Defendants from Lorraine Cassano down the chain to Jerry Mazzone, where the paths diverge. Viewing the evidence in the light most favorable to the Commission, however, the record would permit the conclusions that (1) Jerry Mazzone then tipped his cousin, Peter Mazzone, (2) Peter Mazzone telephoned Tribiano on the morning of June 2, 1995 and placed an order with her to purchase Lotus options, and (3) within minutes, Tribiano placed not only Peter Mazzone's order, but orders to purchase Lotus shares for herself and the other Russo Defendants, who were co-workers with whom she enjoyed cordial and, in the case of Scipioni, family relationships. The critical question is whether Peter Mazzone tipped Tribiano and, through her, the other Russo Defendants in that morning telephone call.
The circumstantial evidence would permit the inference that he did and that the Russo Defendants knowingly traded on inside information concerning IBM's forthcoming takeover bid for Lotus. Peter Mazzone admittedly was in knowing possession of inside information at the time he made the call to Tribiano and conceded that he tipped others. Indeed, he already has pleaded guilty to criminal charges for that conduct. The fact that Tribiano and the others bought Lotus shares almost immediately after Mazzone's call is suggestive, at least given the lack of any alternative explanation for those purchases that a trier of fact would be obliged to credit. There are indications that material nonpublic information about the Lotus deal was circulating at Russo Securities at the relevant time. Moreover, Peter Mazzone took the Fifth Amendment at his deposition in response to questions about his conversations with Tribiano, and each of the Russo Defendants took the Fifth Amendment during his or her investigative testimony before the Commission in lieu of answering substantive questions about the Lotus trading. (DX 108, at 20-24 (DeTommasso); DX 123, at 10-14, 26-42 (Tribiano); PX 118, at 10, 14-16, 23-39 (Scipioni f/k/a Russo))
The invocation of the Fifth Amendment permits the drawing of an inference against the witness in civil matters. E.g., Baxter v. Palmigiano, 425 U.S. 308, 316-18 (1976); LiButti v. United States, 107 F.3d 110, 120-21 (2d Cir. 1997); Brink's Inc. v. City of New York, 717 F.2d 700, 708-09 (2d Cir. 1983). The fact that this occurred some time ago and that these witnesses subsequently have waived the privilege in this action goes to the weight of the inference, not to the propriety of drawing it. Moreover, the explanation — that they took the privilege before the Commission because they "had no idea what the insider trading charges were based on" (Scipioni Reply Aff. ¶ 8; see also Russo Def. Reply Mem. at 4-5) — is as susceptible of the inference that they were unwilling to testify until they got their stories straight as with any innocent explanation.
The case against the moving defendants, as they contend, appears to turn on circumstantial evidence. The Court is mindful also that care must be exercised lest speculation substitute for reason in such a situation. Nevertheless, the Court is unwilling to take the matter away from the trier of fact at this stage.
3. The Ribellino Defendants alternatively seek a severance for trial, principally on the basis that the Commission will seek to have an inference drawn against the Ribellino Defendants and perhaps others from invocations of the Fifth Amendment. There is no reason to suppose that the trier of fact will be unable to confine any such inference to the persons against whom it properly may be drawn as the Court will instruct. The economies to be gained from a joint trial are substantial, as the evidence concerning the IBM-Lotus transaction and a good portion of the chain of tips that allegedly began with Lorraine Cassano is common to the Ribellino Defendants and others. In all the circumstances, the Court declines to grant a severance.
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For the foregoing reasons, all pending motions by defendants for summary judgment dismissing the complaint or for other relief are denied in their entirety.
SO ORDERED.