UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 17278 / December 18, 2001

Securities and Exchange Commission v. Patricia A. Bugenhagen, James L. Shisler, James R. Gallagher, Estate of Timothy P. Gallagher, Richard J. Merman, John P. Dougherty, and Fred D. Shapiro, 01 Civ. 6538 (E.D.PA.)

SEC CHARGES SEVEN WITH INSIDER TRADING

The Securities and Exchange Commission today filed an injunctive action in the United States District Court for the Eastern District of Pennsylvania, alleging that Patricia A. Bugenhagen, a former employee of BetzDearborn Inc., James L. Shisler, her brother-in-law, James R. Gallagher, Timothy P. Gallagher (now deceased), Richard J. Merman, John P. Dougherty, and Fred D. Shapiro, engaged in illegal insider trading in advance of the July 30, 1998 announcement that BetzDearborn Inc. and Hercules Inc. had agreed to merge. The complaint alleges that, in total, the defendants reaped illegal profits of $270,200.

The complaint alleges that Bugenhagen, an executive assistant at BetzDearborn, learned of the impending merger around June 30, 1998, at which time she reallocated a portion of her retirement account to purchase BetzDearborn securities. At the same time, Bugenhagen tipped Shisler, who purchased 100 shares of BetzDearborn. Bugenhagen subsequently purchased BetzDearborn securities for herself using her brother-in-law's account. On July 17, 1998, through Shisler's account, Bugenhagen purchased 300 shares of BetzDearborn for $38.50 per share, for a total cost of $11,550 - her first-ever purchase of common stock outside of her 401(k) plan. After her investments, Bugenhagen had 81% of her liquid assets tied up in BetzDearborn stock.

The complaint further alleges that Bugenhagen tipped her close friend, defendant James R. ("Bob") Gallagher ("Bob Gallagher"), about the impending merger, and he in turn tipped his brother, Timothy P. Gallagher. On July 8, 1998, Tim Gallagher bought 50 shares and 40 call options of BetzDearborn. Tim Gallagher in turn tipped three friends who belonged to his informal weekly investment group about the impending takeover of BetzDearborn by Hercules. These three individuals, Merman, Dougherty, and Shapiro, purchased BetzDearborn securities in advance of the merger announcement. On July 9, 1998, Dougherty purchased 20 BetzDearborn call options. On July 14, 1998, Shapiro bought 300 shares of BetzDearborn. On July 15, 1998, Merman bought 50 BetzDearborn call options.

On July 30, 1998, BetzDearborn and Hercules announced that they agreed to merge and that Hercules would pay $72 per share for all outstanding BetzDearborn shares. After the announcement, BetzDearborn common stock opened at $68.25 per share, an increase of $32.375, or approximately ninety percent (90%), over the prior day's closing price.

The Commission alleges that as a result of the conduct described above, Bugenhagen, a former employee of BetzDearborn Inc., Shisler, Bob Gallagher, Tim Gallagher, Merman, Dougherty, and Shapiro violated Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. In its action, the Commission is seeking permanent injunctions, disgorgement of the illegal trading profits, prejudgment interest, and civil penalties.

Bugenhagen, age 47, resides in Skippack, Pennsylvania; Shisler, age 54, resides in Buffalo, New York; Bob Gallagher, age 57, resides in Flourtown, Pennsylvania; Timothy P. Gallagher died on May 4, 2001, at the age of 65, while a resident of Philadelphia; Merman, age 63, resides in Wayne, Pennsylvania; Dougherty, age 63, resides in Springfield, Pennsylvania; and Shapiro, age 49, resides in Bala Cynwyd, Pennsylvania.

Without admitting or denying the facts alleged in the complaint, the defendants have agreed to settlements under which they will disgorge $270,200 in total. The settlements filed with the court for court approval are as follows:

(1) Bugenhagen, Shisler, Bob Gallagher, Merman, Dougherty, Shapiro consent to entry of final judgments permanently enjoining them from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and

(2) The defendants have agreed to pay the following:

• Bugenhagen, $9,325 disgorgement, prejudgment interest, and $9,325 in civil penalties;

• Shisler, $2,556 disgorgement, prejudgment interest, and $2,556 in civil penalties;

• Bob Gallagher $10,000 in civil penalties;

• Merman, $109,750 disgorgement, prejudgment interest, and $55,000 in civil penalties;

• Dougherty, $36,250 disgorgement, prejudgment interest, and $36,250 in civil penalties;

• Shapiro, $ 9,750 disgorgement, prejudgment interest, and $9,750 in civil penalties; and

• In addition, the Estate of Timothy P. Gallagher is disgorging $102,569 plus prejudgment interest.

The Commission acknowledges the assistance provided by the Pacific Stock Exchange in the investigation of this matter. This is the Commission's third insider trading case concerning trading before the merger of BetzDearborn and Hercules. See SEC v. Rodolfo Luzardo, et al., 01 Civ. 9206 (DC) (S.D.N.Y.) (filed October 18, 2001) (Litigation Release No. 17197) and SEC v. Joseph F. Doody IV, et al., 01 Civ. 9879 (JK) (S.D.N.Y.) (filed November 8, 2001) (Litigation Release No. 17225). The Commission's investigation into insider trading before the announcement of the merger of BetzDearborn and Hercules is continuing.

SEC Complaint in this matter.