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SEC v. LENFEST

December 23, 1996

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
HAROLD FITZGERALD LENFEST AND MARGUERITE LENFEST, Defendants.



The opinion of the court was delivered by: JOYNER

 Joyner, J.

 December 23, 1996

 The Securities and Exchange Commission ("SEC") has brought this federal question action against Defendants H.F. and Marguerite Lenfest for alleged violations of Section 10(b) of the Securities and Exchange Act of 1934, (the "1934 Act"), as codified at 15 U.S.C. ยง 78j (West 1992), and Rule 10b-5 promulgated thereunder. Defendant Marguerite Lenfest has filed this summary judgment motion pursuant to Fed. R. Civ. P. 56(c), claiming that she is not an insider of the company whose stock she allegedly traded and therefore cannot be held liable under Section 10(b). We disagree with defendant's contention and accordingly, we deny summary judgment.

 BACKGROUND

 Defendant H. F. Lenfest is the Founder, President and Chief Executive Officer of Lenfest Communications Inc. ("LCI"), a cable television business that is estimated to be the 20th largest cable business in the United States. His wife, Defendant Marguerite Lenfest, is also an officer of LCI. Together with a third party, the Lenfests have constituted the Board of Directors of LCI since 1981.

 During the periods at issue in this lawsuit, LCI was owned 50% by various members of the Lenfest family, and 50% by Liberty Media Corporation ("Liberty"), another cable business for which Mr. Lenfest serves on the Board of Directors. Liberty received its interest in LCI from Tele-Communications, Inc. ("TCI"), a third cable related business.

 On October 6, 1993, Mr. Lenfest, by virtue of his position as a member of Liberty's Board of Directors, became aware of an impending merger between Liberty and TCI that would then result in the combined entity's merger with Bell Atlantic Corporation ("Bell Atlantic"). Mr. Lenfest, and all others at the Liberty Board of Directors' meeting, were cautioned not to trade in any of the three affected companies.

 The following day, there were press reports of the possible TCI/Liberty merger but Mr. Lenfest did not confirm or deny them despite inquiries from employees of LCI. Nevertheless, he did reveal this nonpublic highly confidential information to his wife while on a trip later that day. He also told her about the possible merger with Bell Atlantic describing it as the "largest merger in history." By October 8th, there was a press release announcing the imminence of the TCI/Liberty transaction and for the next three or four days, there was also publicity about the possibility of a major telephone company investing in the TCI/Liberty merger, references most likely to Bell Atlantic.

 On October 10, 1993 Mrs. Lenfest asked her son, Chase Lenfest to purchase either Liberty or TCI stock for one of her investment accounts, for which he was manager. Chase Lenfest then asked his father which stock, Liberty or TCI, he thought would make a better purchase. Mr. Lenfest replied that he thought that TCI would make the better purchase and Chase Lenfest subsequently purchased TCI stock for himself and his mother. *fn1" Two days later, the proposed TCI/Liberty/Bell Atlantic merger was publicly announced.

 In support of her summary judgment motion, defendant's central argument is that Mrs. Lenfest cannot be held liable for insider trading because she was not an insider of either Liberty or TCI. *fn2" We reject defendant's argument and hold that defendant may nevertheless be held liable for violations of Section 10b.

 DISCUSSION

 A. Summary Judgment Standard


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