The US Securities and Exchange Commission last week formally announced charges against a former managing director of Madison Dearborn Partners who the SEC says profited illegally through his knowledge of an impending acquisition.
Justin Huscher, who left the Chicago private equity firm in late 2004, has agreed to pay more than $108,000 in “disgorgement and civil penalties”, the SEC announced. As part of the settlement, Huscher is not “admitting or denying the Commission’s allegations”.
The charges relate to Huscher’s 2003 purchase of 8,000 shares of UniSource Energy Corporation stock through his personal brokerage account. The purchase came shortly before Tucson, Arizona-based UniSource announced an agreement to be acquired by an investment group that included Kohlberg Kravis Roberts, JP Morgan Partners and Wachovia Capital Partners.
According to the SEC, Huscher, 52, made $54,692.25 as a result of the timely investment. The price of UniSource shares rose approximately 26 percent following the acquisition announcement.
The SEC alleges that Huscher learned of a plan to acquire UniSource from a managing director at JP Morgan Securities, a person who “was one of Huscher’s close friends and business associates”. The JP Morgan Securities professional is not identified in the announcement.
The JP Morgan professional originally contacted Huscher in October 2002 to see if Madison Dearborn would be interested in joining a consortium to acquire UniSource. Madison Dearborn originally agreed to back the acquisition, but later dropped out of the consortium.
According to the SEC, Huscher’s friend called him again in November 2003 to let him know an announcement on the acquisition was imminent. “Huscher, after learning of the impending acquisition, purchased 8,000 shares of Unisource stock. . .” according to the SEC complaint.
The monetary penalties include a disgorgement of the allegedly illicit profit, interest on the profit, plus a civil penalty equal to the profit.
As part of the settlement with the SEC, Huscher has agreed to not associate with any investment advisor, although he will be free to reapply to work in the industry after four years.
Huscher was a prominent member of the Madison Dearborn team until he left the firm in late 2004. According to a December 2004 announcement from Magellan Midstream Partners, an energy company in which Madison Dearborn has an investment, Huscher “retired” from the private equity firm and was replaced on Magellan’s board by another Madison Dearborn representative.
According to biographical information taken from a separate Magellan filing, Huscher was a founder of Madison Dearborn, and part of a group of several other founding partners who had worked together at First Chicago Venture Capital for several years. He sat on the boards of portfolio companies Bay State Paper Company, Jefferson Smurfit Group and Packaging Corporation of America.
In 2003, Huscher led his firm’s investment in Williams Energy, a deal done in conjunction with The Carlyle Group/Riverstone Global Energy.