U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 19363 / September 7, 2005

SECURITIES AND EXCHANGE COMMISSION v. DAVID L. JOHNSON, Civil Action No. 05-CV-4789 (E.D.Pa.)

SEC CHARGES DAVID L. JOHNSON WITH INSIDER TRADING

JOHNSON AGREES TO PAY OVER $786,000 TO SETTLE CHARGES

On September 07, 2005, the Securities and Exchange Commission (Commission) filed a complaint against David L. Johnson in the United States District Court for the Eastern District of Pennsylvania alleging that Johnson committed insider trading by selling prior to the public announcement that PMA would be discontinuing its payment of a common stock dividend and increasing its carried loss reserves at its reinsurance subsidiary. Without admitting or denying the allegations in the complaint, Johnson consented to the entry of a final judgment, subject to the court's approval, in which he is permanently enjoined from further violations of the antifraud provisions of the federal securities laws and agreed to pay disgorgement of his and his son's trading profits, plus prejudgment interest and a one time civil penalty totaling $786,449.

The Commission's complaint alleges that on October 31, 2003, Johnson contacted the then Chairman of PMA's Board of Directors regarding an adverse analyst report he had received about PMA. In response to Johnson's inquiry about the financial health of PMA, the then Chairman informed Johnson that PMA was not doing well financially, would be discontinuing its payment of a common stock dividend and increasing carried loss reserves at its reinsurance subsidiary, PMA Reinsurance. Following this discussion and on the basis of the information he received, Johnson sold 20,000 shares of PMA stock on October 31, 2003, and 20,000 shares of PMA stock on November 3, 2003. Further relying on the information he received, Johnson also tipped his son, who on November 2, 2003, sold 3,300 shares of PMA stock owned jointly with his wife and 3,600 shares of PMA stock in his capacity as custodian for his daughters.

The Commission's complaint further alleges that PMA did not make public the information regarding the elimination of the common stock dividend and the need to increase significantly carried loss reserves at the subsidiary until November 4, 2003. The day of PMA's public announcement, PMA's common stock closed at a price of $5.03 per share, down approximately sixty-two percent from the prior day's close of $10.00 per share. By selling in advance of the public announcement, Johnson avoided $325,305 in losses and his son avoided $56,028 in losses.

The Commission's complaint alleges that Johnson's sales of PMA stock prior to the public announcement on November 4, 2003, violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder.

SEC Complaint in this matter

http://www.sec.gov/litigation/litreleases/lr19363.htm