Knall accepts suspension in unusual SEC case

Back to TopCommentsE-mailPrintBookmark and Share

Newly public records suggest that securities investigators had far from an airtight insider-trading case against David Knall, the star Indianapolis investment broker who nonetheless agreed to settle the 3-year-old inquiry by agreeing to a one-year suspension.

The Securities and Exchange Commission announced the pact Dec. 4. In addition to consenting to the suspension, Knall, a managing partner of Stifel Nicolaus & Co., agreed to pay $123,865.

That sum includes $55,281 in losses the SEC says Knall avoided by making a trade in Galyan's Trading Co. stock in his personal account days before the company announced it would be acquired by Pittsburgh-based Dick's Sporting Goods for $305 million.

The punishment is unusually light for an SEC insider-trading enforcement action, and that seems warranted given that it isn't clear Knall meant to do anything improper, said Mark Maddox, an Indianapolis securities attorney with no involvement in the case.

Indeed, court papers filed by the SEC indicate that although Knall had received advance word of the Galyan's-Dick's deal, he might not have realized when he made the trade that it hadn't been announced.

Further, the morning after the announcement, Knall on his own reported his trade to the CEO and to the chief compliance officer of his employer at the time, Clevelandbased McDonald Investments.

"This case sounds more like negligence than a serious securities fraud," Maddox said. "At the end of the day, one has to ask himself, 'Would a guy like Dave Knall risk his securities license over a $50,000 matter intentionally?'"

Knall, 63, is one of the nation's topproducing investment brokers. His 30-person team oversees $6 billion in assets for some of the state's most prominent families, including the Simons.

Papers filed in federal court in Indianapolis show in April 2004, weeks before Knall got word of the Galyan's deal, he sold 10,000 shares of the company short-a tactic investors use when they think shares are going to decline in value. Short-sellers unload stock they've borrowed from a broker, in a bet they'll be able to cover-in other words, return the borrowed stock-at a lower price. They face stiff losses if a stock instead moves higher.

The SEC says that "just after midnight" on June 12, 2004, "an individual" told Knall that Dick's planned to buy Galyan's. The person telling Knall had learned of the deal from a real estate professional who'd been helping Dick's find Indianapolis-area store sites. The real estate professional, in turn, had been told of the plan by a Dick's vice president, according to court papers.

Neither the "individual" nor the real estate professional is identified in court records.

Four days later, Knall covered his short position by buying Galyan's shares. The next week, Dick's said it was buying Galyan's for $16.75 a share-an announcement that sparked a 50-percent runup in Galyan's shares.

After Knall bought the shares, "he realized that there had been no announcement," court papers say. The morning after the companies finally announced the deal on June 21, Knall reported the trade to McDonald higher-ups.

In the settlement, Knall did not admit or deny the SEC's allegations of insider trading. In an interview with IBJ, he said deciding to settle "was an agonizing decision. You have to understand this did not involve client monies. It was my own account. It involved a single trade. ... I just wanted to get it behind me."

Knall's suspension is expected to begin in a few weeks. During his absence, clients "will be taken care of as they are accustomed," said Ronald Kruszewski, CEO of St. Louisbased Stifel Nicolaus.

The SEC took no action against Knall's son Jamie, who also was part of the insider-trading investigation. Jamie worked with his father at McDonald and jumped with him to Stifel in April 2005.

At McDonald, the insider-trading probe had sidelined both men. David had been on a leave of absence since December 2004, and Jamie had been on indefinite suspension since a month earlier. Stifel allowed the pair to return to work immediately.

Court papers don't mention Jamie by name. An attorney for David Knall, Richard Morvillo, would not comment on the SEC's allegations. He wouldn't say whether the person who told David about the deal was Jamie.

Post a comment to this story

We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
You are legally responsible for what you post and your anonymity is not guaranteed.
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
Subscribe to IBJ
  1. I took Bruce's comments to highlight a glaring issue when it comes to a state's image, and therefore its overall branding. An example is Michigan vs. Indiana. Michigan has done an excellent job of following through on its branding strategy around "Pure Michigan", even down to the detail of the rest stops. Since a state's branding is often targeted to visitors, it makes sense that rest stops, being that point of first impression, should be significant. It is clear that Indiana doesn't care as much about the impression it gives visitors even though our branding as the Crossroads of America does place importance on travel. Bruce's point is quite logical and accurate.

  2. I appreciated the article. I guess I have become so accustomed to making my "pit stops" at places where I can ALSO get gasoline and something hot to eat, that I hardly even notice public rest stops anymore. That said, I do concur with the rationale that our rest stops (if we are to have them at all) can and should be both fiscally-responsible AND designed to make a positive impression about our state.

  3. I don't know about the rest of you but I only stop at these places for one reason, and it's not to picnic. I move trucks for dealers and have been to rest areas in most all 48 lower states. Some of ours need upgrading no doubt. Many states rest areas are much worse than ours. In the rest area on I-70 just past Richmond truckers have to hike about a quarter of a mile. When I stop I;m generally in a bit of a hurry. Convenience,not beauty, is a primary concern.

  4. Community Hospital is the only system to not have layoffs? That is not true. Because I was one of the people who was laid off from East. And all of the LPN's have been laid off. Just because their layoffs were not announced or done all together does not mean people did not lose their jobs. They cherry-picked people from departments one by one. But you add them all up and it's several hundred. And East has had a dramatic drop I in patient beds from 800 to around 125. I know because I worked there for 30 years.

  5. I have obtained my 6 gallon badge for my donation of A Positive blood. I'm sorry to hear that my donation was nothing but a profit center for the Indiana Blood Center.