03/19/03

WED 13:46 FAX 312 353 3381 U.S. S.E.C.

DECLARATION OF JACK NOONAN
I, Jack Noonan, declare under penalty of perjury, in accordance with 28 U.S.C.
§1746, as follows:
~ Tam the President and Chief Executive Officer of SPSS, Inc., (“SPSS”) a

publicly traded company. “SPSS i isa computer software company, specializing in

predictive analytics and data mining,

2 ; At least three meetings 'b fo re October L 1999, in either late 1997, or early

1998, I joined a group of ‘approximately ten to eleven chief executive officers of software 4.0:

; ve Roundiable”. When a joined the Software ‘Executive ”

Roundtable, it was presented tome asa forum almost age, Ae. an outside Board of,

3. The Software Executive Roundtable meets twice yearly. In advance. of
each meeting, the members, eomail questions to the meeting’s sponsor, who would then
prepare a list of the questions, There are typically six to ten members at each meeting,
and the meetings are pretty intense. At the meetings, which run about six hours a day for
two or three days, each member would give an update presentation, and then the group
would go through the questions. The information presented and discussed by the
Software Executive Roundtable members is often sensitive and confidential and was
expected to be kept confidential.

4. Itis a definite and fundamental understanding of the Software Executive
Roundtable that matters of a confidential or sensitive nature are to be kept confidential.
This has always been the definite and fundamental understanding of the Software
Executive Roundtable.

5. From September 30, 1999-October 2, 1999, there was a meeting of the

Software Executive Roundtable held at the Inn at National Hall in Westport, Connecticut

@ooz



considerable expense and the possibility of losing on that issue
{and consequent liability). Surely the potential for such abuse
on the part of the recipient of nonpublic information by the
irresponsible act of trading on that information further
heightens the notion of a duty owed to the disclosing party by
that recipient (in this instance Kirch) not to trade on the
nonpublic information (a further demonstration of the “duty of
loyalty and confidentiality” that O'Hagan has identified as the
hallmark of the “misappropriation theory”).

This Court therefore holds Kirch liable for his violations
of the Securities Act and the Securities Exchange Act. It turns
then to the question of appropriate relief, for which purpose it
begins with two of Kirch's representations as set out in his
initial Memorandum of Law at 25 (what are quoted here are Kirch's
headings of two successive sections of that memorandum) :

5. If The Court Finds That He Violated Securities
Laws, Kirch Will Assure That No Future Violations
Occur.

6. Kirch May Maintain That His Actions Were Proper

But Will Accept That His Conduct Was Wrongful Should
The Court Make That Finding‘

6 [Footnote by this Court] This Court reads Kirch's
representations as an agreement to accept this Court's
determination as to liability, although it recognizes from his
counsel's further arguments that he may dispute the scope of some
relief that might be awarded here. This Court did not request
any such effective waiver by Kirch of any right to appeal the
liability issue, but it surely respects and accepts Kirch's
undertaking in that respect. What follows in the next section of
this opinion is premised in important part on that undertaking.

13



sensitive and confidential nature, the Roundtable and its members
had an express policy and understanding that such matters were
indeed to be kept confidential. As Noonan Decl. 94 states:

It is a definite and fundamental understanding of the
Software Executive Roundtable that matters of a
confidential or sensitive nature are to be kept
confidential. This has always been the definite and
fundamental understanding of the Software Executive
Roundtable.

To the identical effect, President-CEO of ShowCase Corporation
(“ShowCase”) Kenneth Holec (“Holec”) states in Paragraph 3 of his
February 21, 2001 sworn declaration, which this Court also
credits:

It is a definite policy and fundamental understanding
of the software roundtable that matters of a
confidential or sensitive nature are to be kept
confidential. When I make a presentation before the
software roundtable that included confidential
information, it is my practice to remind the group of
the sensitive and confidential nature of the material I
am about to present and the need to keep the
information confidential.‘

4 [Footnote by this Court] Again Kirch has been
considerably less than forthright on a highly material fact in
this litigation. During his testimony under oath during the SEC
investigation of the subject, he expressly agreed “that it was a
definite policy of fundamental understanding of the Software
Round-Table that matters of a confidential or sensitive nature
are to be kept confidential.” But during this litigation he has
sought to waffle on that score, not only on the premise that the
‘Roundtable had no written policies regarding confidentiality”
but by attempting to distinguish between the Holec statement just
quoted in the text and a portion of Holec's further sworn
statement (his Decl. 49) next quoted in the text. That weak
effort truly advances a distinction without a difference, and
Kirch's effort to cavil at the SEC's accurate presentation--which
is based not only on Noonan's and Holec's sworn statements but
also on Kirch's own sworn admissions--does him no credit.

4



a

03/19/03 WED 13:46 FAX 312 353 3381 U.S. S.E.C. Joos

(“Connecticut roundtable”). I attended this meeting, as did others including Kenneth

Holec and Terry Kirch.
6. Atthe October 1, 1999 Software Executive Roundtable meeting, Holec gave
a presentation concerning ShowCase Corporation. Holec’s presentation included a

discussion of the fact that ‘ShowCase Corporation’ ‘would not make its earnings projections ~

for the second quarter. Holec stated that he was not going to make his number; that he ai
needed. help with, how to communicate that information to the street and to his

, . employees; anda discussion ensued. Kirch took part in these discussions. : ES eae
7. : ‘lt did not. surprise me that Holee put this issue before the group, because : :
sensitive matters like that were discussed all the time at meetings of the Software”

; , Executive. Roundtable. In fact, at the last meeting Tattended, one of the. members

a a a om

discussed ‘the hiring of anew C 0, a very confidential matter. Similarly, the various .
¢

members may discuss “metrics” — or different ways of measuring productivity or pay
y iB

during meetings of the Software Executive Roundtable. This is very valuable
confidential information and i is not information Iwould’share with the outside. Other

examples of confidential topics | discussed during meetings include the hiring and firing of

employees, methods of raising capital and the selection of investment bankers.

I declare under penalty of perjury under the laws of the United States of America that the

foregoing statements are true to the best of my knowledge.

Executed this _ day of March 2003 at Chicago, Ilinois

pele Vso

Jack Noonan

oer eae pere nnn



that a civil penalty of three-fourths of the disgorgement figure
(including accrued interest) is an ample response to Kirch's
original conduct and to the dubious aspects of his conduct after
the insider trading violation, while at the same time such a
penalty serves an exemplary purpose in providing a disincentive
both for Kirch and for any like-minded other persons.
Conclusion
For the most part, there is no genuine issue as to any
material fact--and as to the few areas in which the parties have
expressed different perceptions of the facts, they have agreed to
this Court's resolution of such issues. For the reasons
expressed in this opinion, the SEC is entitled to a judgment as a
matter of law, so that its Rule 56 motion is granted (and Kirch's
counter-motion is of course denied). Based on the factual
findings and conclusions that have been set out here, this Court
therefore:
1. holds that Kirch violated the securities laws by
his improper sale of 8,500 shares of ShowCase stock;
2. denies SEC's motion for a permanent injunction
against Kirch;
3. orders Kirch to pay the SEC the disgorgement sum of
$45,687.50, plus prejudgment interest at the prime rate
compounded from October 1, 1999 to the date of judgment; and

4. orders Kirch to pay the SEC a civil penalty equal

17


The two theories are complementary, each addressing
efforts to capitalize on nonpublic information through
the purchase or sale of securities. The classical
theory targets a corporate insider's breach of duty to
shareholders with whom the insider transacts; the
misappropriation theory outlaws trading on the basis of
nonpublic information by a corporate "outsider” in
breach of a duty owed not to a trading party, but to
the source of the information. The misappropriation
theory is thus designed to protect the integrity of the
securities markets against abuses by “outsiders” to a
corporation who have access to confidential information
that will affect th[e] corporation's security price
when revealed, but who owe no fiduciary or other duty
to that corporation's shareholders.

Where the parties part company is as to whether Kirch fits into
that theory.

Before this opinion turns to that issue, though, a few
critical and undisputed aspects of the analysis should be
confirmed. First, there is no question that the negative
information about ShowCase was material--that was obvious up
front, and it was confirmed dramatically when, after the public
announcement was made following the market close on October 4

(with the stock then at $9.50 per share), the next day's closing

price plummeted to $4 per share. Second, Kirch's attempted
earlier wriggling on the subject does not obscure the now
undisputed fact that he owed--and he knew that he owed--Holec and
the other Roundtable members an express duty to keep confidential
all of the business information that he learned at the Roundtable
meeting.

Next, even though Kirch's acknowledgments do not extend to



For some time Kirch had been a ShowCase stockholder as the
result of market acquisitions (its stock was NASDAQ-traded).
Almost immediately after Holec's completion of his presentation
in the late morning of October 1, Kirch called his broker Piper
Jaffray (at 11:42 a.m. that same morning) and placed an order to
sell 8,500 shares out of his 15,000 share holding. As
anticipated, when the confidentially-communicated information was
released to the public a few days later (after the market close
on October 4), the ShowCase stock price dropped precipitously--
from $9.50 to $4 a share in just one trading day. According to
the SEC, Kirch's sale of his stock for nearly $80,000 thus
avoided losses of more than $45,000 (Kirch does not question the
fact of his avoidance of loss, responding only that he cannot
admit the exact amount specified by the SEC because of
uncertainty as to which date the agency used to compute the final
stock price).

That then provides the framework for this Court's
consideration of the issues. It is true that Kirch has earlier
dissembled in a number of other significant respects--for
example, (1) when Holec first called Kirch and asked him about
his stock sale (in response to an NASD inquiry), Kirch falsely
said he had traded on the day or night before Holec's Roundtable
presentation, then during his testimony in the course of the

SEC's investigation Kirch shifted to a suggestion that the trade


As just indicated, Holec was another member of the
Roundtable during 1999. Here is how he described his critical
presentation at the October 1 Roundtable meeting (his Decl. q9),
an account that this Court credits as accurate in all respects:

At around 10:15-11:00 a.m., I gave my presentation to

the software roundtable concerning ShowCase

Corporation. I began my presentation by stating that

the information I was going to present was confidential

and had not yet been publicly announced. My

presentation lasted approximately 20-30 minutes and

included a discussion of the fact that ShowCase

Corporation would not make its earnings projections for

the second quarter. I presented this confidential

information to the software roundtable as I sought

their input as to how to publicly announce this

information and how to deal with employee and customer

concerns. After my presentation, I believe the

software roundtable took another break.

Indeed, Noonan's account of that presentation (Noonan Decl. 6)
is entirely consistent with Holec's version, with the addition
(also credited by this Court) that Kirch had himself taken part
in the discussion of the business issue that was invited by Holec
(and was the reason that Holec disclosed the nonpublic
information about corporate earnings in the first place).

For his part, Kirch agrees with a portion of the Noonan (and
hence the Holec) description, while he does not dispute the
balance because of what he says is his insufficient recollection
of the event. And as that consistent description makes plain,
Holec's confidentially communicated earnings information bode

ill--at the least--for the price of ShowCase's stock in the

marketplace when that information became public.

5


to three-fourths of the amount calculated in paragraph 3.
This action is set for a status hearing at 8:45 a.m. July 16,
2003, with the SEC to have provided Kirch's counsel and this
Court, not later than July 11, with a proposed form of judgment
order contemplating the entry of that order at that status

hearing.?®

Tle O) Soecbaur

Milton I. Shadur
Senior United States District Judge

Date: June 20, 2003

° As stated earlier, this opinion has been written on the

premises (1) that Kirch is accepting this Court's resolution of
the liability issue against him and (2) that he accedes to his
payment of the full disgorgement amount, plus (a) prejudgment
interest (Kirch Mem. 28) and (b) “at most a small less~than-one-
times civil penalty” (id. at 30). If Kirch seeks to back away
from any of those undertakings, his counsel must promptly
hereafter notify SEC's counsel and this Court so that the issues
dealt with here might be reconsidered in that light. At the same
time, this Court recognizes that Kirch's acceptance of the
premises stated in this footnote is the equivalent of his entry
into a consent decree on those terms. In that sense equity would
appear to require that he not surrender his ability to contest
the amount of the civil penalty unless the SEC is also prepared
to accept all of the terms of the judgment order provided for in
the text--and the SEC's counsel are required to notify Kirch's
counsel and this Court, on or before July 11, as to the SEC's
willingness to do so.

18


corporate insider on the basis of material nonpublic
information--violates Securities Act §17(a) (15 U.S.C. §77q(a)),
Securities Exchange Act §10(b) (15 U.S.C. §78j(b)) and Rule 10b-5
under the Exchange Act. What has then followed from that
fundamental proposition, in a kind of evolutionary process, has
been the extension of the same type of prohibition to persons
who, although not insiders as to the issuer itself, come into
possession of nonpublic information and proceed to act on it by
buying or selling shares in the issuer. And part of the analysis
as to the potential liability of such persons examines not only
the circumstances surrounding their acquisition of the nonpublic
information but also the requirement that their actions in
trading on that information must have been taken with scienter
(the groundbreaking opinion in Ernst & Ernst v. Hochfelder, 425
U.S. 185, 193 n.12 (1976) provides a working definition of
“scienter”).

As to such noninsiders in the classic sense, the courts have
developed the “misappropriation theory” that has been articulated
and approved in United States v. O'Hagan, 521 U.S. 642, 652-53
(1997) (internal quotation marks omitted):

The "misappropriation theory” holds that a person

commits fraud "in connection with" a securities

transaction, and thereby violates §10(b) and Rule

10b-5, when he misappropriates confidential information

for securities trading purposes, in breach of a duty
owed to the source of the information.

* * *



Minute Order Form (06/97)

United States District Court, Northern District of Illinois

Name of Assigned Judge
or Magistrate Judge

Sitting Judge if Other
than Assigned Judge

Milton I. Shadur

CASE NUMBER 02 C7195 DATE 6/20/2003
CASE United States Securities vs. Terry L. Kirch
TITLE
{In the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

MOTION: of the motion being presented.]

DOCKET ENTRY:

qd) oO Filed motion of [ use listing in “Motion” box above.]

(2) o Brief in support of motion due

(3) Oo Answer brief to motion due. . Reply to answer brief due.

(4) im Ruling/Hearing on set for at

(5) oO Status hearing[held/continued to] [set for/re-set for] on set for _ at.

(6) im Pretrial conference[held/continued to] [set for/re-set for] on set for at :

(7) Oo Trial[set for/re-set for] on at

(8) oO [Bench/Jury trial] [Hearing] held/continued to at

(9) 0 This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

DOFRCP4(m) OLocalRule 41.1 CFRCP41(a)(1) O FRCP41(a)(2).

(10) | [Other docket entry] Enter Memorandum Opinion and Order. For the reasons expressed in this opinion , the SEC
is entitled to a judgment as a matter of law, so that its Rule 56 motion is granted (14-1)(and Kirch’s counter-motion is of course
denied). (20-1) This action is set for a status hearing at 8:45 a.m. July 16,2003, with the SEC to have provided Kirch’s counsel
and this Court, not later than July 11, with a proposed judgment order contemplating the entry of that order at that status
hearing. Defendant’s motion for leave to file supplemental authority is denied as moot. This Court has reviewed the cited
authority and finds it both (1) not on point and (2) as not calling for any different analysis or conclusions than are set out in
the contemporaneously issued memorandum opinion and order,

dl) @f [For further detail see order attached to the original minute order.]

No notices required, advised in open court.
No notices required. R oe .
v | Notices mailed by judge’s staff.
Notified counsel by telephone. docket
Docketing to mail notices.
Mail AO 450 form. Lungalpary Isla's'q Detinar Phy initials
Copy to judge/magistrate judge. Liye
B19 6ff0/2003
courtroom L 1:2 Wh y wire es date mailed notice
SN deputy's fd 02 Mar bu ox
initials
OT G3- ate/time received in
Q 3 ] Ieper Clerk’s Office mailing depoty initials



fiduciary. Instead that “duty of loyalty and confidentiality”
can be (and is) created by precisely the type of policy and
expectations that are present in the Roundtable relationships
here (see the discussion in Yun, 327 F.3d at 1272-73) .°

This Court is unpersuaded by Kirch's attempted reliance on

United States v. Kim, 164 F.Supp.2d 1006 (N.D. Cal. 2002). Quite

apart from the principle about which our Court of Appeals is fond
of reminding those who labor in the District Court vineyards--the
principle that the opinions written by District Judges are
nonprecedential and are thus entitled to no more than a modicum
ef consideration en route to a decision (see most recently the

concluding portion of the opinion in Bank of America, N.A. v.

Mogiia, 2003 WL 21254909 (7% Cir. June 2))--and even apart from
what this Court perceives as critical distinctions between the
Young Presidents Organization and the situation at issue in Kim

and the Roundtable and the situation presented in this case, this

s

5 In part the Yun court sides with the Chestman dissent on
the premise that the majority in the latter case “too narrowly
defined the circumstances in which a duty of loyalty and
confidentiality is created between husband and wife” (Yun, id. at
1272). In addition Yun, id. at 1272 n.22 pointed out that the
Chestman majority itself had stressed it was determining the
scope of the required relationship between tipper and tippee in
the context of a criminal case, indicating that a less rigorous
approach might be called for in the context of a civil case such
as this one. This Court finds it unnecessary to choose between
the Chestman majority on the one hand and the Chestman dissent
and the Yun opinion on the other, for it holds that the situation
here would satisfy even the more demanding approach of the
Chestman majority.

11


the legal consequences of the clearly established facts, it is
beyond dispute that his sale of the ShowCase shares involved
scienter on his part. That is at the core of the
‘misappropriation theory,” as exemplified not only by the
earlier-quoted portion of the O'Hagan opinion but also by such
further exposition in O'Hagan as this (521 U.S. at 656):

A misappropriator who trades on the basis of material,

nonpublic information, in short, gains his advantageous

market position through deception; he deceives the

source of the information and simultaneously harms

members of the investing public.

For this Court that combination of factors unquestionably
brings this case well within the purview of the analytic thrust
ef such cases as United States v. Chestman, 947 F.2d 551 (2d Cir.

1991) (en banc) (a decision interestingly sought to be relied on by

both litigants), United States v. Falcone, 257 F.3d 226, 234-35

(2d Cir. 2001) (a decision invoked by SEC and sought--unsuccess-
fully--to be distinguished by Kirch) and SEC v. Yun, 327 F.3d
1263 (11** Cir. 2003), a case decided since the completion of the
parties' briefing. What is plain to this Court, and what it
holds, is that the “duty of loyalty and confidentiality” owed by
the outsider (in this instance Kirch) to the person (in this
instance Holec) who shared confidential information with him or
her (the quoted phrase is from O'Hagan, 521 U.S. at 652) is not
limited to fiduciary relationships in the limited sense that

requires such factors as control and dominance on the part of the

10



was made “early in the morning” (which would again have placed it
before Holec's presentation), and he finally owned up to the
actual time sequence only when he was confronted with the
recorded time of his telephone call to the broker; (2) during the
SEC's investigation Kirch also testified that he did not learn of
ShowCase's failure to meet the analysts' earning estimates until
after the information had become public, but he was then forced
to concede otherwise when he was confronted by contradictory
documentary evidence; (3) he has claimed ignorance of the law
regarding insider trading, even though his sworn testimony during
the SEC investigation was directly at odds with that; and (4) his
version of the Roundtable's purpose has shifted appreciably by
laying emphasis on the social aspects of the Roundtable
(including a recharacterization of its sessions as “informal
gatherings” rather than meetings)--a shift in emphasis that
occurred as he became aware that the Roundtable's purpose might
be a material factor in this case. But at the final reading,
Kirch has ultimately come clean in all respects (though he
retains his different spin on the Roundtable's activities), so
that what has been recited up to now forms the proper matrix for
this opinion's legal determinations.
Kirch's Liability
It has long been established that “insider trading” in the

literal and classic sense--trading in a corporation's stock by a



when the operative events at issue in this litigation took
place,? he was the President, owner and founder of a privately-
held company, Resource Information Management Systems. At that
time he and a handful of others (some ten or so in number) who
were also key officers in companies engaged in the computer
software business? were members of an unincorporated group
calling itself the “CEO Roundtable” or “Software Executives
Roundtable” (“Roundtable”) that met twice a year for sessions
lasting two, three or four days.

Although some part of those meeting days are spent in social
or recreational activities, their fundamental purpose (and that
of the Roundtable itself) is business-oriented: About six hours
each day are spent in members-only meetings (to the exclusion of
spouses, other family members and friends). Because the very
nature of the meetings--to exchange information and ideas that
are or could be of utility to the members in their respective

businesses--is such as to call for imparting information of a

2 Any dates mentioned in this opinion without a year

designation refer to the year 1999.

> Typical of Kirch's often disingenuous approach to this
litigation--and indeed to the entire matter at issue--is his
quibbling disclaimer of the SEC assertion in its LR 56.1 (a) (3)
statement of assertedly undisputed material facts that the
Roundtable members were “chief executive officers of software
companies.” According to Kirch, he was not--and in purporting to
deny that statement he refers to paragraph 2 of the same SEC LR
56.1 statement, which he does not dispute, that he was his
company's “President, owner and founder.”

3



Remedies Against Kirch

As is often true in insider trading cases, the SEC presses
for the issuance of a permanent injunction against Kirch. In
turn Kirch's counsel argue fervently against such relief,
devoting fully 40% of their initial Memorandum of Law--12 pages
out of an oversized 30-page memorandum’--to those arguments.
Although this opinion has already reflected this Court's
discomfiture at Kirch's laggard steps in coming to grips with his
conduct here (including his dissembling in a number of respects),
and although it finds his action in trading on the nonpublic
information to have been obviously motivated by greed, it is also
aware that Kirch is a one-time rather than a repeat offender.

And there is no question that this experience has to have been
both expensive and sobering for him.

Under all of the circumstances, this Court is prepared to
credit Kirch's current assurances as to the nature of his future
conduct (including his undertaking to have his attorneys review
all future trades in stock with which he has any relationship).
In light of those considerations and given Kirch's assurances,
and also mindful of the draconian aspects of the sweeping type of

permanent injunction that is sought by SEC (an injunction that

7’ That emphasis is even more striking in light of the fact
that Kirch's original memorandum was devoted not only to opposing
SEC's summary judgment motion but also to advancing Kirch's
cross-motion under Rule 56.

14


the compounded prime rate (else a wrongdoer will have gained an
unwarranted profit from the use of the ill-gotten gains in the
interim) --see, e.g., such recent cases as Fritcher v. Health Care
Serv. Corp., 301 F.3d 811, 819-20 (7% Cir. 2002) and cases cited
there as to prime-rate prejudgment interest generally, and Am.

Nat'l Fire Ins. Co. v. Yellow Freight Sys., Inc., 325 F.3d 924,

937-38 (7 Cir. 2002) and cases cited there as to the award of
such interest at the compounded prime rate. This Court orders
the addition of such compounded prime-rate interest to the
disgorgement amount payable to the SEC.

As for the possible imposition of a civil penalty, the SEC
asks for treble damages. Kirch responds by pointing to the
factors identified in SEC v. Youmans, 729 F.2d 413, 415 (6 Cir.
1984), a case invoked by the SEC itself, and to cases that impose
a much smaller penalty under circumstances just as egregious as
(or more egregious than) those involved here.

This Court rejects any notion of effectively rewarding Kirch
by imposing no civil penalty at all, a result that would
impermissibly increase the incentive to violate the law by
insider trading. After all, if an offender is not caught he or
she gets away scot free with the improperly obtained profit--so
it is obviously necessary to up the ante well beyond mere
disgorgement when an offender is brought to task. After full

consideration of the competing considerations, this Court holds

16



court's perception that one or more potentially outcome-
determinative facts was or were in dispute even though the
litigants had not thought so, in which event both sides' hopes of
a disposition short of trial would be defeated. In response to
this Court's inquiry whether the parties would be amenable to
this Court's resolution of any such factual issues if that were
to develop, Kirch's counsel immediately responded in the
affirmative, and SEC's counsel have since provided their consent
to such treatment.

What follows then in the Facts section of this opinion and
in the analysis that follows is in accordance with that joint
agreement. For example, where there are some divergences between
Kirch's characterizations of events and those of Jack Noonan
(“Noonan”) --another member of the Roundtable referred to in the
Facts--this Court has credited Noonan's sworn version as that of
an unbiased witness with no self-interest and with no reason to
shape the facts to favor one side or the other.*

Facts
Kirch is now a senior vice president of a publicly-traded

company, Trizetto Group, Inc. (“Trizetto”). In the fall of 1999

+ Noonan's March 2003 sworn declaration (SEC Ex. 23, cited

here as “Noonan Decl. 4--”) is attached to this opinion and is
incorporated by reference. Although one portion of that
declaration is expressly quoted in this opinion, the nonquoted
portions are also credited by this Court and have been taken into
consideration in reaching its decision.

2



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

UNITED STATES SECURITIES AND
EXCHANGE COMMISSION,

Plaintiff,
v. No. 02 ¢ 7195
TERRY L. KIRCH,

Defendant.

MEMORANDUM OPINION AND ORDER

United States Securities and Exchange Commission (“SEC”) has
sued Terry Kirch (“Kirch”), charging him with a violation of the
“insider trading” prohibitions of the federal securities laws.
As counsel for the litigants had told this Court they would do,
they have filed cross-motions for summary judgment in compliance
with Fed.R.Civ.P. (“Rule”) 56 and this District Court's LR 56.1
implementing that Rule. Each side has not only submitted
memoranda by which each has supported its or his own motion and
has responded to the other party's cross-motion, but has also
filed a reply relating to its or his own motion. Those
memoranda, together with some other filings by the litigants,
have brought the case into a posture ripe for judicial
resolution.

When Kirch's counsel advised during the course of a January
14, 2003 status hearing that a cross-motion under Rule 56 was in
the offing, this Court cautioned counsel for the parties that

strict adherence to Rule 56 principles sometimes resulted in a


Court subscribes to the principle that the Roundtable
relationships and the circumstances of Holec's disclosure of
nonpublic information under such express confidentiality
constraints call for application of the “misappropriation theory”
here.

Even though this further point is not made a condition of
the conclusion reached here (and is hence dictum in the purest
sense), it is significant to note that disclosures of material
nonpublic information of the type at issue here, made by an
insider such as Holec with the knowledge (although it was not his
intent) that the persons to whom the information was being
imparted could take advantage of that information by trading in
the stock, might--in addition to the present consideration of the
tippee's liability, as discussed in the cases referred to
here--arguably put the tipper such as Holec at risk under the
securities laws. To be sure, the caselaw dealing with tipper
responsibility speaks of the tipper's intent that the tippee make
use of the inside information by trading in the issuer's stock
(see, @.g., such cases as United States v. McDermott, 245 F.3d
133, 138-39 (2d Cir. 2001) and Falcone, 257 F.3d at 233-34). But
that carries with it the real prospect that such trades by a
tippee can embroil the tipper in investigations or litigation (or
both) that can force him or her to demonstrate the absence of the

prohibited intent--a burden that imposes the certainty of

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would, for example, require Kirch to sever his relationship with
Trizetto), this Court denies the SEC's motion for that type of
relief .®

As for the prospect of granting the SEC's request for
financial relief, Kirch's Mem. 28 recognizes the propriety of his
being saddled with a disgorgement obligation in the sum of
$45,687.50 as calculated by the SEC--after all, such a payment on
his part amounts to no more than his giving up the money that he
derived in violation of the securities laws by unloading the
ShowCase stock when he did, rather than after the decline in the
stock's value that was occasioned by the public release of the
previously-confidential information.

That leaves two other monetary considerations for
resolution: (1) the potential application of prejudgment
interest on the disgorgement and (2) the determination of a
possible civil penalty. This opinion turns finally, then, to
those issues.

As to the former, Seventh Circuit law consistently teaches
that the norm in federal question cases (and certainly the
permissible rule in a district court's discretion) is to award

such prejudgment interest--and indeed preferably to award it at

6 This Court is also aware of Kirch's ouster from the
Roundtable, and its order here will also be conditioned on his
commitment not to seek or to obtain reinstatement in that
organization at any time in the future.

15