SEC sues former gaming exec for alleged insider trading

By Steve Green (contact)

Friday, Nov. 20, 2009 | 9:42 a.m.

The Securities and Exchange Commission on Thursday sued former gaming executive R. Brooke Dunn, charging he and a friend were involved in illegal insider trading of the securities of Shuffle Master Inc. of Las Vegas.

Dunn, of Henderson, is accused of providing nonpublic information to Nicholas P. Howey of Darnestown, Md., that enabled Howey to gain $237,000 in trading of Shuffle Master securities.

The gain involved profits, or losses that were avoided, the SEC alleges.

"Dunn benefited .. by conferring a gift of confidential information on his friend Howey. That gift allowed Howey to turn a losing investment – an investment in which Dunn had played a role in Howey’s decision to invest – into a profitable one," the government agency charged in the lawsuit.

Howey is described in the lawsuit as chief executive of a privately held company that produces musicals and other shows. The SEC says Dunn and Howey met professionally in the early 1990s and later became friends.

At times, Howey used his connections in the entertainment industry to give Dunn opportunities to buy at face value difficult-to-acquire tickets to theatre productions in New York and Las Vegas, the government alleges.

The SEC lawsuit alleges that Dunn provided nonpublic information to Howey about a possible joint venture between Shuffle Master and International Game Technology called "Project Blue Sky" that would exploit a Shuffle Master product called E-Tables, the lawsuit says.

Shuffle Master makes card shufflers and other products for casinos.

Talks in 2007 between the two casino industry suppliers didn't pan out, however, and no public announcement was ever made about "Project Blue Sky."

After learning from Dunn of a potential announcement involving IGT, however, Howey invested in Shuffle Master securities based on that information, the suit says.

Howey then saw his investments decline in value, prompting him on Feb. 15, 2007, to ask Dunn what was "going on," the lawsuit says.

Then, the lawsuit says, Dunn attended Shuffle Master's weekly executive team meeting on Feb. 26, 2007, where he learned the company would issue a press release announcing disappointing financial results for its quarter ending Jan. 31.

Dunn left the meeting at 9:20 a.m. and at 9:26 called Howey and spoke to him, the suit says.

"Dunn disclosed during that call material nonpublic information relating to Shuffle Master’s anticipated announcement, in breach of his fiduciary duty to Shuffle Master and its shareholders," the suit says.

This caused Howey at 9:29 a.m. to start trading in Shuffle Master securities based on the nonpublic information, the lawsuit says.

Howey knew that Dunn was an executive at Shuffle Master and knew or should have known that Dunn disclosed material nonpublic information in breach of his fiduciary duty to Shuffle Master and its shareholders, the government alleges.

The suit alleges violations of the federal Securities Act, seeks an injunction barring future violations and asks that Dunn and Howey surrender "all ill-gotten gains" from the trades, with interest.

The government also seeks civil penalties against the pair and that Dunn be prohibited from serving as an officer or director of any public company.

On Nov. 18, 2008, Shuffle Master announced that Dunn, senior vice president, had been placed on administrative leave with pay after he received notice from the SEC staff of an insider trading investigation.

"Mr. Dunn has denied any wrongdoing or improper activity," Shuffle Master said at the time.

On Dec. 31, Shuffle Master said Dunn had "ceased his full time employment with the company."

On Friday, Dunn said he couldn't comment on the lawsuit. Howey could not immediately be reached for comment.