SEC: Family Insider-Trading Scheme Garnered $1 Million In Profits

A pair of freight railway employees and several family members were charged with allegedly conducting an insider trading scheme that garnered more than $1 million in illegal profits, according to the Securities and Exchange Commission.

The SEC alleges that W. Gary Griffiths and Cliff M. Steffes learned confidential information in early 2007 about the then-upcoming acquisition of Florida East Coast Industries Inc., which owned the freight railway where they worked in Jacksonville, Fla.

The two men tipped family members with the nonpublic information, and the traders collectively purchased more than $1.6 million in stock and options ahead of the May 2007 announcement of the $3.5 billion acquisition of Florida East Coast Industries by an affiliate of Fortress Investment Group LLC (FIG).

According to the SEC complaint, Griffiths is a resident of Elkton, Fla., and chief mechanical officer of Florida East Coast. Steffes, who currently resides in Lisle, Ill., worked in the railyard in Jacksonville when the insider-trading scheme occurred.

The SEC alleged the two men tipped Steffes's father and Griffith's brother-in-law with the confidential information. Also allegedly tipped were Steffes's two brothers and an uncle.

Without admitting or denying the SEC's allegations, the uncle--Robert J. Steffes--has consented to a court order, requiring him to pay disgorgement of $104,981, prejudgment interest of $15,951 and a penalty of $104,981.

Legal representatives for Griffiths and the Steffes family members weren't immediately available to comment.

   -By John Kell, Dow Jones Newswires; 212-416-2480; [e-mail]