A pioneer hedge fund manager has been punished for insider trading of Calix shares after the Petaluma telecom equipment vendor announced a $213 million acquisition in 2010.
Investor Michael Steinhardt used information he learned from a lawsuit to profit from short-selling Calix stock, according to the judge in the case.
Earlier this month, Delaware Chancery Court Judge J. Travis Laster ordered Steinhardt to repay $534,000 in profits from the Calix trades.
Steinhardt also was ordered to report the improper trades to federal securities regulators and was barred from getting any recovery from the lawsuit.
Steinhardt is chairman of WisdomTree Investments, a New York asset management firm that offers a family of exchange traded funds. Considered one of Wall Street's most successful investors, he ran a hedge fund from 1967 to 1995 and now manages his own money through a pair of investment companies.
The insider trading case stems from Calix's acquisition of Occam Networks, a rival telecom vendor that Calix bought last year.
Calix announced the cash-and-stock deal in September 2010, saying Santa Barbara-based Occam would expand the Petaluma company's portfolio of broadband networking technology.
Steinhardt and several other large Occam shareholders filed a lawsuit to stop the deal, saying Occam's directors didn't try to get the best price for the company.
They said Occam should call off the Calix deal and auction itself to the highest bidder. Calix's offer inflated the value of Calix shares used in the acquisition, the plaintiffs said.
The judge ordered more disclosure about terms of the deal, but allowed the sale to go forward. A majority of Occam shareholders approved Occam's sale to Calix last February.
Steinhardt started short-selling Calix stock in December 2010, believing it was overpriced and would fall in value, according to the judge's 29-page ruling. At the time, he was getting confidential information about the Calix-Occam deal based on documents and depositions in the lawsuit.
As a plaintiff in the case, Steinhardt wasn't allowed to use confidential information to trade Calix or Occam shares, the judge said.
"Steinhardt did not make any effort to establish an internal ethical wall or otherwise segregate litigation responsibility from trading responsibility," Laster said.
Calix shares have fallen sharply since the Occam acquisition, when they closed at $19.03 on the New York Stock Exchange. Shares sold for $8.42 on Monday.
Steinhardt didn't respond to requests for comment, but has denied in legal filings that he received any information that influenced his trades.
Calix officials declined comment on the case.
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