2 agree to settle insider-trading case

SEC civil suit involved Mercantile-F&M 2003 deal

March 31, 2006|By LAURA SMITHERMAN | LAURA SMITHERMAN,SUN REPORTER

A few days after making more than $100,000 from selling stock in F&M Bancorp, a Frederick bank acquired by Baltimore-based Mercantile Bankshares Corp. three years ago, Gary R. Dowell sent his buddy a $1,000 money order with a note that said, "Thank you."

The evidence was among the most damning in an insider-trading case brought this week against Dowell and Terry F. Favilla, according to prosecutors. They say Favilla, who was then working for Susquehanna Bancshares Inc., tipped off Dowell to an impending deal. Susquehanna was one of several companies vying to acquire F&M that lost out to Mercantile.

Dowell, 59, and Favilla, 44, have agreed to settle the civil case brought by the Securities and Exchange Commission in U.S. District Court in Philadelphia.

Without admitting or denying the charges, Dowell agreed to surrender trading profits of $104,133 plus interest and pay a civil penalty of the same amount.

Favilla agreed to pay about $18,160, including the $1,000 payment from Dowell.

"Our position is that after receiving information from Favilla, Dowell thanked him by giving him a gratuity," said Dean M. Conway, assistant chief litigation counsel for the SEC.

This is not the first insider-trading case to arise from the Mercantile-F&M deal. In 2004, two former Mercantile employees agreed to settle SEC charges that they tipped family members and a friend to a looming deal.

Mercantile first approached F&M's board of directors about a possible combination in December 2002. Within three months, F&M had solicited other offers and reviewed proposals from several competitors. Favilla became involved when he worked up an analysis for Susquehanna of a potential merger with F&M, according to the SEC complaint. He had signed a confidentiality agreement before doing so.

During that time, Favilla also placed a call from his office to Dowell and while they were on the phone placed an order to purchase 500 shares of F&M, the complaint said. Minutes after they hung up, Dowell started buying the stock and over the next several days spent almost $270,000 on thousands of shares.

F&M and Mercantile announced their deal before stock markets opened March 13, 2003. F&M stock rocketed 37 percent on the news that day, from $31 a share to $42.48. Soon afterward, the SEC said, Favilla and Dowell sold their stakes at a profit.

Dowell and Favilla had known each other for years, according to the complaint. As an executive at Reisterstown Federal Savings Bank, a predecessor of Susquehanna, Dowell hired Favilla. Dowell, now retired, also hired Favilla to prepare his income tax returns. Favilla hasn't worked at Susquehanna, which is based in Lititz, Pa., since September 2003.

Conway declined to say what led investigators to Favilla and Dowell, though he said insider trading cases often stem from a review of trading records or from an informant.

Calls to Favilla, who lives in Lititz, seeking comment and to his lawyer were not returned. Dowell, of Reisterstown, couldn't be reached. His lawyer, Paul S. Maco, said, "We have no comment."

laura.smitherman@baltsun.com

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