IBJNews

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.
ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
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
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. With Pence running the ship good luck with a new government building on the site. He does everything on the cheap except unnecessary roads line a new beltway( like we need that). Things like state of the art office buildings and light rail will never be seen as an asset to these types. They don't get that these are the things that help a city prosper.

  2. Does the $100,000,000,000 include salaries for members of Congress?

  3. "But that doesn't change how the piece plays to most of the people who will see it." If it stands out so little during the day as you seem to suggest maybe most of the people who actually see it will be those present when it is dark enough to experience its full effects.

  4. That's the mentality of most retail marketers. In this case Leo was asked to build the brand. HHG then had a bad sales quarter and rather than stay the course, now want to go back to the schlock that Zimmerman provides (at a considerable cut in price.) And while HHG salesmen are, by far, the pushiest salesmen I have ever experienced, I believe they are NOT paid on commission. But that doesn't mean they aren't trained to be aggressive.

  5. The reason HHG's sales team hits you from the moment you walk through the door is the same reason car salesmen do the same thing: Commission. HHG's folks are paid by commission they and need to hit sales targets or get cut, while BB does not. The sales figures are aggressive, so turnover rate is high. Electronics are the largest commission earners along with non-needed warranties, service plans etc, known in the industry as 'cheese'. The wholesale base price is listed on the cryptic price tag in the string of numbers near the bar code. Know how to decipher it and you get things at cost, with little to no commission to the sales persons. Whether or not this is fair, is more of a moral question than a financial one.

ADVERTISEMENT