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Deloitte Partner Thomas P. Planagan Busted for Insider Trading

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Deloitte Vice-Chairman and Senior Partner Thomas P. Flanagan convicted of insider trading and sentenced to prison time.
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8/9/15, 5:16 PM Ex-Deloitte Partner Gets 21 Months for Insider Trades - Bloomberg Business Page 1 of 4 http://www.bloomberg.com/news/articles/2012-10-26/exdeloitte-partner-gets-21-months-for-insider-trades-1 Ex-Deloitte Partner Gets 21 Months for Insider Trades October 26, 2012 — 4:31 PM EDT Updated on October 26, 2012 — 6:41 PM EDT Andrew M Harris Oct. 26 (Bloomberg) -- Thomas P. Flanagan, a former Deloitte & Touche LLP partner, was given 21 months in prison for trading on insider information about the accounting firm’s clients, including Best Buy Co. and Walgreen Co. Flanagan, who pleaded guilty to a single count of securities fraud in August, was also sentenced today to one year of supervised release and fined $100,000 by U.S. District Judge Robert M. Dow in Chicago. Flanagan left Deloitte in 2008, ending an association with the New York-based firm and its predecessors that lasted more than three decades. “It was stupid, it was arrogant and it was wrong. It was so wrong,” Flanagan -- who turned 65 today -- told Dow before he was sentenced. The ex-certified public accountant said he deeply regretted what he had done. Flanagan served as an advisory partner and liaison between the audit-management teams of Walgreen, Best Buy and Sears Holdings Corp. and the firm’s auditors, according to the original charging papers filed in July. His job gave him access to non-public information involving those companies and the technology firm formerly known as Motorola Inc., including quarterly earnings results and potential acquisition targets, according to a plea agreement he signed in August. Used Accounts From December 2006 to May 2008, Flanagan traded on the information to reap illegal profits of at least $420,000 for himself, using accounts he owned or controlled including some in the names of family members, according to the agreement. He also passed on information that allowed a relative to make $58,000, according to the document.
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8/9/15, 5:16 PMEx-Deloitte Partner Gets 21 Months for Insider Trades - Bloomberg Business

Page 1 of 4http://www.bloomberg.com/news/articles/2012-10-26/exdeloitte-partner-gets-21-months-for-insider-trades-1

Ex-Deloitte Partner Gets 21 Months forInsider TradesOctober 26, 2012 — 4:31 PM EDTUpdated on October 26, 2012 — 6:41 PM EDT

Andrew M Harris

Oct. 26 (Bloomberg) -- Thomas P. Flanagan, a former Deloitte & Touche LLP partner, was given 21 months inprison for trading on insider information about the accounting firm’s clients, including Best Buy Co. andWalgreen Co.

Flanagan, who pleaded guilty to a single count of securities fraud in August, was also sentenced today to oneyear of supervised release and fined $100,000 by U.S. District Judge Robert M. Dow in Chicago. Flanagan leftDeloitte in 2008, ending an association with the New York-based firm and its predecessors that lasted more thanthree decades.

“It was stupid, it was arrogant and it was wrong. It was so wrong,” Flanagan -- who turned 65 today -- told Dowbefore he was sentenced. The ex-certified public accountant said he deeply regretted what he had done.

Flanagan served as an advisory partner and liaison between the audit-management teams of Walgreen, Best Buyand Sears Holdings Corp. and the firm’s auditors, according to the original charging papers filed in July.

His job gave him access to non-public information involving those companies and the technology firm formerlyknown as Motorola Inc., including quarterly earnings results and potential acquisition targets, according to aplea agreement he signed in August.

Used Accounts

From December 2006 to May 2008, Flanagan traded on the information to reap illegal profits of at least$420,000 for himself, using accounts he owned or controlled including some in the names of family members,according to the agreement. He also passed on information that allowed a relative to make $58,000, accordingto the document.

8/9/15, 5:16 PMEx-Deloitte Partner Gets 21 Months for Insider Trades - Bloomberg Business

Page 2 of 4http://www.bloomberg.com/news/articles/2012-10-26/exdeloitte-partner-gets-21-months-for-insider-trades-1

Securities fraud carries a maximum punishment of 20 years in prison. Flanagan’s plea agreement called for aterm of three to four years in prison, and prosecutors sought at least 37 months.

Benches on one side of the courtroom gallery today were filled with members of Flanagan’s family -- includinghis wife of 43 years, Betsy, and sons Patrick, 42, Michael, 40, and Brien, 37 -- as well as friends and neighbors.

Citing Flanagan’s plea and devotion to family and community, defense attorney Joel Levin asked Dow toimpose a sentence of six months’ incarceration and 1,000 hours of community service.

‘An Aberration’

“Mr. Flanagan’s insider trading represents an aberration from an otherwise exemplary life of devotion to family,church, community and charitable endeavors,” Levin said in an Oct. 19 brief. “In the four years since heresigned from Deloitte and while awaiting the outcome of the pending criminal investigation, he has doneeverything within his power to make amends for his illegal conduct.”

Levin today told Dow his client was a decent man who had already sustained the loss of his professional licenseand paid $15 million to settle civil lawsuits filed against him by Deloitte and by the U.S. Securities andExchange Commission.

Acknowledging the court’s need to impose a sentence that could deter others from committing similar crimes,Levin said six months’ imprisonment wasn’t an insignificant amount of time given his client’s age and wouldn’tbe out of line with other insider trading sentences.

‘Scarlet Letter’

He specifically cited the two-year term imposed Oct. 24 upon Rajat Gupta, the former Goldman Sachs GroupInc. director who leaked stock tips to Galleon Group LLC co-founder Raj Rajaratnam.

Unlike his client, Levin said, Gupta maintained his innocence and forced the government to prove his guilt at atrial.

“There’s no escaping what I did,” Flanagan told the judge, calling his crime “a scarlet letter.”

Prosecutors said Flanagan’s personal history didn’t outweigh the severity of his crime and argued for apunishment that would promote deterrence.

8/9/15, 5:16 PMEx-Deloitte Partner Gets 21 Months for Insider Trades - Bloomberg Business

Page 3 of 4http://www.bloomberg.com/news/articles/2012-10-26/exdeloitte-partner-gets-21-months-for-insider-trades-1

“As in most insider-trading cases, it was not a crime of need or passion,” the U.S. said in a filing. “It was acrime based on greed and an arrogant belief that defendant would not be caught.”

Assistant U.S. Attorney Jason Yonan returned to that theme today in court, addressing the question of whyFlanagan would commit such an act.

‘Arrogant Belief’

“He had an arrogant belief that he would get away with it,” Yonan said.

The prosecutor said Flanagan had committed a serious crime that feeds a public perception that the investmentworld lacks what he called “a level playing field,” necessitating a punishment that will discourage others.

“He needs to be held accountable,” Yonan said. “Fining a millionaire millions of dollars is not generaldeterrence.”

Dow agreed, noting that Flanagan didn’t need the money generated by the unlawful options trading, which hesaid was a tiny fraction of his net worth.

“The only explanation I can come up with is hubris,” the judge said.

Flanagan, his wife and his attorney each declined to comment after the proceeding.

Concealed Trades

Flanagan must report to prison on Jan. 15. His lawyer asked Dow to recommend to the federal Bureau ofPrisons that Flanagan be incarcerated at its minimum security facility in Yankton, South Dakota.

“Deloitte unequivocally condemns Mr. Flanagan’s actions,” Jonathan Gandal, a spokesman for the firm, saidtoday in an e-mailed statement, reiterating comments made after the ex-partner entered his guilty plea inAugust.

“Mr. Flanagan concealed from Deloitte his trades in the securities of our clients, lied about his compliance withour independence policies and otherwise circumvented our system for reporting and tracking investments,”Gandal said.

8/9/15, 5:16 PMEx-Deloitte Partner Gets 21 Months for Insider Trades - Bloomberg Business

Page 4 of 4http://www.bloomberg.com/news/articles/2012-10-26/exdeloitte-partner-gets-21-months-for-insider-trades-1

Flanagan and his son Patrick agreed in 2010 to pay more than $1.1 million to settle related insider-tradingclaims brought by the U.S. Securities and Exchange Commission.

The case is U.S. v. Flanagan, 12-cr-00510, U.S. District Court, Northern District of Illinois (Chicago).

To contact the reporter on this story: Andrew Harris in Chicago at [email protected]

To contact the editor responsible for this story: Michael Hytha at [email protected]

8/9/15, 5:09 PMFBI — Former Deloitte Partner Pleads Guilty to Illegally Profiting $420,000 from Insider Trading Involving Firm’s Clients

Page 1 of 2https://www.fbi.gov/chicago/press-releases/2012/former-deloitte-partner-pleads-g…-to-illegally-profiting-420-000-from-insider-trading-involving-firm2019s-clients

Former Deloitte Partner Pleads Guilty to IllegallyProfiting $420,000 from Insider Trading Involving

Firm’s Clients

U.S. Attorney’s OfficeAugust 08, 2012

Northern District of Illinois(312) 353-5300

CHICAGO—A former partner at a major accounting firm in Chicago pleaded guilty today to engaging ininsider trading after he obtained material, non-public information about publicly traded clients and usedthe information himself and shared it with a relative to make illegal trading profits. The defendant,Thomas P. Flanagan, a certified public accountant, was a partner in the Chicago Office of Deloitte &Touche LLP when he engaged in insider trading between December 2006 and May 2008.

Flanagan, 64, of Chicago, pleaded guilty to one count of securities fraud, admitting that he receivedillegal profits totaling approximately $420,000, and his relative, who was not charged, received at least$58,000 in illegal profits. The profits resulted from illegally trading on the inside information thatFlanagan obtained regarding Deloitte clients Best Buy Co. Inc., Walgreen Co., Motorola Inc., and SearsHolding Corp.

Flanagan is free on his own recognizance while awaiting sentencing on October 25, 2012, by U.S. DistrictJudge Robert M. Dow, Jr. Securities fraud carries a maximum sentence of 20 years in prison and a $5million fine. A written plea agreement anticipates an advisory United States Sentencing Guidelinesrange of 37 to 46 months in prison, with the government recommending a sentence at the low end of theguideline range. Flanagan was charged in a criminal information filed on July 11.

The guilty plea was announced by Gary S. Shapiro, Acting United States Attorney for the NorthernDistrict of Illinois, and Robert D. Grant, Special Agent in Charge of the Chicago Office of the FederalBureau of Investigation. The U.S. Securities and Exchange Commission assisted in the investigation. In2010, Flanagan paid slightly more than a $1 million to settle an SEC civil enforcement action. Thesettlement amount included $493,884 in disgorged profits, an equal amount in civil penalties, and pre-judgment interest.

According to the plea agreement, Flanagan was the advisory partner on Deloitte’s engagements withBest Buy, Walgreens, and Sears, and, in that capacity, served as a liaison between the client’s auditmanagement team and Deloitte’s audit engagement team. He also served on Deloitte’s non-auditengagement team with Motorola. As a result, Flanagan learned material, non-public information aboutthese clients, including quarterly earnings results and possible acquisition targets. Flanagan knew thathe owed a fiduciary duty to Deloitte and its clients to maintain the confidentiality of the non-publicinformation and that he was prohibited from obtaining any financial interest in an audit client, as well asdisclosing or trading on the basis of inside information.

Flanagan admitted that he illegally bought and sold securities using accounts that he owned orcontrolled, including accounts in his name and jointly with his wife, two of his sons, and a trust accountfor which he served as trustee. He also admitted tipping a relative, identified as Individual A, so thatIndividual A could benefit from trading on the inside information that Flanagan received.

The plea agreement details a series of illegal trades that Flanagan made, and tipped Individual A tomake, based on his advance knowledge of a fourth quarter earnings report that was weaker than analystshad predicted for Walgreens in 2007; a sales decline for Motorola during the fourth quarter of 2007;Walgreens’ agreement in 2007 to purchase Option Care Inc.; and Sears’ 2008 first quarter earningsreport that was weaker than analysts had predicted. Flanagan also made, and tipped Individual A tomake, illegal trades involving Best Buy related to two quarterly earnings reports in 2007 and 2008, aswell as its early 2008 forecast of reduced earnings lower revenue growth. The insider trading resulted inillegal profits to the financial detriment of the persons or entities on the other side of the tradingtransactions, the plea agreement states.

The government is being represented by Assistant U.S. Attorney Jason Yonan.

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Home • Chicago • Press Releases • 2012 • Former Deloitte Partner Pleads Guilty to Illegally Profiting $420,000 from Insider Trading Involving Firm’s Clients...

8/9/15, 5:09 PMFBI — Former Deloitte Partner Pleads Guilty to Illegally Profiting $420,000 from Insider Trading Involving Firm’s Clients

Page 2 of 2https://www.fbi.gov/chicago/press-releases/2012/former-deloitte-partner-pleads-g…-to-illegally-profiting-420-000-from-insider-trading-involving-firm2019s-clients

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The announcement is part of efforts underway by the Financial Fraud Enforcement Task Force (FFETF),which was created in November 2009 to wage an aggressive, coordinated, and proactive effort toinvestigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’Offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, andregulatory agencies ever assembled to combat fraud. Since its formation, the task force has facilitatedincreased investigation and prosecution of financial crimes; enhanced coordination and cooperationamong federal, state, and local authorities; addressed discrimination in the lending and financialmarkets, and conducted outreach to the public, victims, financial institutions, and other organizations.Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud casesagainst nearly 15,000 defendants, including more than 2,700 mortgage fraud defendants. For moreinformation on the task force, visit www.stopfraud.gov.

8/9/15, 5:13 PMSEC Charges Former Deloitte Partner and Son With Insider Trading; 2010-140; Aug. 4, 2010

Page 1 of 3https://www.sec.gov/news/press/2010/2010-140.htm

High-Res Photo

“Thomas Flanaganrepeatedly betrayed hisethical responsibilities andhis clients' trust by tradingon confidential informationto enrich himself and hisfamily.”

Merri Jo GilletteDirector

SEC Chicago RegionalOffice

Home | Previous Page

SEC Charges Former Deloitte Partner and Son WithInsider Trading

FOR IMMEDIATE RELEASE2010-140

Washington, D.C., Aug. 4, 2010 — TheSecurities and Exchange Commission todaycharged a former Deloitte and Touche LLPpartner and his son with insider trading in thesecurities of several of the firm's audit clients.

Additional Materials

SEC Complaint Against Thomas Flanaganand Patrick FlanaganSEC Administrative Order Against ThomasFlanaganLitigation Release No. 21612

The SEC alleges that Thomas P. Flanagan ofChicago traded in the securities of Deloitteclients, often while serving as a liaisonbetween those companies' managementteams and Deloitte's audit engagementteams. In this role, Flanagan had access toadvance earnings results and other nonpublicinformation from Deloitte's auditengagements with Best Buy, Sears, andWalgreens as well as the firm's consultingengagement with Motorola. Flanagan madetrades in the securities of these and othercompanies while in possession of theconfidential information, and also tipped hisson Patrick T. Flanagan who then traded onthe basis of the nonpublic information.

The Flanagans agreed to pay more than $1.1 million to settle the SEC'scharges.

"Flanagan's insider trading violated one of the most fundamental rules ofpublic accounting," said Robert Khuzami, Director of the SEC's Division ofEnforcement. "All audit firms should learn from this unfortunate episode andemploy vigorous controls designed to ensure compliance with the SEC'sauditor independence rules."

8/9/15, 5:13 PMSEC Charges Former Deloitte Partner and Son With Insider Trading; 2010-140; Aug. 4, 2010

Page 2 of 3https://www.sec.gov/news/press/2010/2010-140.htm

Merri Jo Gillette, Director of the SEC's Chicago Regional Office, said, "ThomasFlanagan repeatedly betrayed his ethical responsibilities and his clients' trustby trading on confidential information to enrich himself and his family."

According to the SEC's complaint, filed in the U.S. District Court in Chicago,Thomas Flanagan worked at Deloitte for 38 years and rose to the position ofVice Chairman of Clients and Markets. The SEC alleges that Flanagancommitted insider trading on nine occasions between 2005 and 2008 bytrading in the securities of multiple Deloitte clients and a company acquiredby Deloitte client Walgreens. Flanagan was in possession of nonpublicinformation about those clients that he learned through his duties as aDeloitte partner, including such material market-moving events as earningsresults, earnings guidance, and acquisitions. Flanagan's illegal tradingresulted in profits of more than $430,000. On four occasions, Flanaganrelayed the nonpublic information to his son, who traded based on thatinformation for illegal profits of more than $57,000.

In addition to the court-filed complaint alleging illegal insider trading, the SECalso instituted administrative proceedings against Thomas Flanagan, findingthat he violated the SEC's auditor independence rules on 71 occasionsbetween 2003 and 2008 by trading in the securities of nine Deloitte auditclients. Accountants are not independent if they own or control securities inthe clients that they audit. The SEC's settled administrative order finds thatwhile Thomas Flanagan owned or controlled client securities, Deloitte issuedaudit reports to the clients stating that the financial statements contained inthe reports had been audited by an independent auditor. However, Deloittewas not independent due to Flanagan's ownership and control of the auditclients' securities. As a result, the SEC's administrative order finds thatThomas Flanagan caused and willfully aided and abetted Deloitte's violationsof the SEC's auditor independence rules under Regulation S-X. Flanagan alsocaused and willfully aided and abetted the clients' violations of the reportingand proxy provisions of the Securities Exchange Act of 1934.

According to the SEC's complaint, Thomas Flanagan concealed his trades inthe securities of Deloitte's clients and circumvented Deloitte's independencecontrols. He failed to report the prohibited trades to Deloitte, lied to Deloitteabout his compliance with its independence policies, and provided falseinformation to Deloitte's personal income tax preparers about the identity ofthe companies whose securities he traded.

As a result of their conduct, the SEC's complaint charged Thomas and PatrickFlanagan with violations of Sections 10(b) and 14(e) of the Exchange Act andRules 10b-5 and 14e-3. The SEC's administrative action found that ThomasFlanagan caused and willfully aided and abetted Deloitte's violations of Rule2-02(b)(1) of Regulation S-X, and caused and willfully aided and abetted theclients' violations of Sections 13(a) and 14(a) of the Exchange Act, and Rules13a-1, 13a-13, and 14a-3 thereunder.

Without admitting or denying the SEC's allegations in the complaint and thefindings in the administrative order, Thomas Flanagan consented to the entryof an order of permanent injunction, disgorgement with prejudgment interestof $557,158, a penalty of $493,884, and a denial of the privilege of appearingor practicing before the SEC as an accountant. Without admitting or denyingthe SEC's allegations in the complaint, Patrick Flanagan consented to the

8/9/15, 5:13 PMSEC Charges Former Deloitte Partner and Son With Insider Trading; 2010-140; Aug. 4, 2010

Page 3 of 3https://www.sec.gov/news/press/2010/2010-140.htm

entry of an order of permanent injunction, disgorgement with prejudgmentinterest of $65,614, and a penalty of $57,656.

James O'Keefe, Steven Klawans, and Kathryn Pyszka conducted the SEC'sinvestigation in this matter. The SEC acknowledges the assistance of FINRAand the Options Regulatory Surveillance Authority in this investigation.

# # #

For more information about this enforcement action, contact:

Timothy L. WarrenAssociate Regional Director, SEC Chicago Regional Office(312) 353-7394

Steven L. KlawansAssistant Regional Director, SEC Chicago Regional Office(312) 886-1738

http://www.sec.gov/news/press/2010/2010-140.htm

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UNITED STATES DISTRICT COURTNORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

UNITED STATES OF AMERICA )) No. 12 CR 510

vs. ) Judge Robert M. Dow, Jr. )

THOMAS P. FLANAGAN )

GOVERNMENT’S POSITION PAPER AS TO SENTENCING FACTORS

The UNITED STATES OF AMERICA, by its attorney, GARY S. SHAPIRO, Acting

United States Attorney for the Northern District of Illinois, hereby presents its sentencing

memorandum for defendant Thomas Flanagan.

I. Introduction

Defendant Thomas Flanagan used his position as a partner at the accounting firm of

Deloitte & Touche to misappropriate material, nonpublic information belonging to Deloitte

clients for the purpose of conducting illegal insider trading. Defendant’s conduct occurred

over the course of at least a year and a half and allowed him to reap approximately $420,000

in profits. Defendant’s actions violated the fiduciary duty of trust and confidence he owed

to Deloitte and to its clients. Defendant not only used the material, nonpublic information

to purchase and sell securities himself, but also tipped some of the information to one of his

sons so that his son could also purchase and sell securities. This resulted in defendant’s son

obtaining approximately $50,000 in illegal profits, and in him being charged in a civil action

brought by the U.S. Securities and Exchange Commission. See Securities and Exchange

Commission v. Flanagan, 10 CV 04885 (N.D. Ill.).

Case: 1:12-cr-00510 Document #: 22 Filed: 10/19/12 Page 1 of 14 PageID #:311

At the time defendant began misappropriating material, nonpublic information

belonging to Deloitte clients, he was successful, highly educated, and had reached the

pinnacle of his profession–achieving the status of a partner at a major public accounting firm.

He was compensated far more than most people would ever dream. He had, by all accounts,

a supportive and loving family. He was also active in civic and charitable endeavors. But

despite all of that, defendant repeatedly engaged in fraud–a fraud involving the

misappropriation of his clients’ secrets that goes to the very heart of the auditor-client

fiduciary relationship.

Insider trading cases, by their nature, are driven by arrogance and greed, and this case

is no exception. Fueled by access to material, nonpublic information and the desire to use

it for their benefit, defendants in insider trading cases cause significant harm to capital

markets and to individual investors on the other side of trades. A sentence of incarceration

is needed in this case to deter those with access to inside information from using it to illegally

trade. Simply put, defendant is the exact type of defendant and committed the exact type of

crime where general deterrence matters. If defendant is sentenced to a term of incarceration

at the low-end of the advisory Guidelines range in this case, the next individual

contemplating engaging in insider trading may think twice about going through with it. The

message this Court can send with a sentence of 37 months’ imprisonment is clear: if you

commit insider trading, particularly the type of insider trading in which you violate a

fiduciary duty of trust to your employer and its clients, you will lose more than your

profits–you will lose your liberty.

2

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II. Application of § 3553(a) Factors

A. Legal Standards

The parties and the Probation Department agree that the properly calculated advisory

Sentencing Guidelines range is 37 to 46 months’ imprisonment. District courts must take the

Guidelines into account in calculating a defendant’s sentence. See Booker v. United States,

125 S.Ct. 738, 767 (2005). Although the Sentencing Guidelines are advisory only, “[a]s a

matter of administration and to secure nationwide consistency, the Guidelines should be the

starting point and the initial benchmark.” Gall v. United States, 552 U.S. 38, 49 (2007). The

Sentencing Guidelines are the sole factor in Section 3553(a) that provides any objective

sentencing range that can practicably promote the overall goal of minimizing unwarranted

sentencing disparities, which is itself a statutorily-mandated factor, Section 3553(a)(6). See

United States v. Mykytiuk, 415 F.3d 606, 608 (7th Cir. 2005) (“The Guidelines remain an

essential tool in creating a fair and uniform sentencing regime across the country.”).

The Court must also consider the factors set forth in Section 3553(a) in determining

a sentence that is sufficient, but not more than necessary, to achieve the goals of sentencing.

In particular, Section 3553(a) requires the Court to consider, among other factors: (1) the

nature and circumstances of the offense; (2) the history and characteristics of the defendant;

(3) the need to reflect the seriousness of the offense, to promote respect for the law, and to

afford adequate deterrence; (4) any pertinent policy statements issued by the Sentencing

Commission; and (5) the need to avoid unwarranted sentencing disparities among defendants

with similar records who have been found guilty of similar conduct. See 18 U.S.C. §

3

Case: 1:12-cr-00510 Document #: 22 Filed: 10/19/12 Page 3 of 14 PageID #:313

3553(a).

These factors, taken together, weigh in favor of a sentence at the low-end of the

advisory Sentencing Guidelines range. In particular, the nature of defendant’s crime and the

need for general deterrence strongly favor such a sentence. Factors that defendant has raised

in his version of the offense, including his wife’s health and the collateral consequences of

his actions, do not outweigh the other Section 3553(a) factors enough to justify the six month

sentence that defendant seeks.

B. The Nature of Defendant’s Crime Weighs Strongly in Favor of a Sentenceat the Low-End of the Guidelines

Defendant’s conduct in this case weighs strongly in favor of a sentence at the low-end

of the advisory Sentencing Guidelines range for a number of reasons. First, defendant’s

misappropriation of inside information occurred over an extended period of time and

involved multiple different Deloitte clients. Defendant had access to material, nonpublic

information because he was a Deloitte partner assigned to Deloitte engagements with

Walgreens, Sears, Motorola, and Best Buy. In the course of his duties, defendant had regular

contact with employees of those companies and had access to information such as earnings

results and acquisition targets that Deloitte employees were privy to in order to conduct

audits for the companies or to provide consulting advice.

Much like an attorney, defendant’s regular access to this type of information came

with the responsibility that he keep it confidential and not use it for his own personal gain.

Information about a company’s earnings results or acquisition targets is highly valued and

4

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highly sought after in the market place. When publicly released, it often significantly affects

a company’s stock price. Defendant was someone that both Deloitte and its clients thought

they could trust with this material, nonpublic information. That was not true. This renders

defendant’s conduct more serious because it involved calculated and repeated efforts to trade

on inside information and attacked the core of trust on which the audit-client relationship is

based.

Second, the nature and circumstances of defendant’s offense are aggravated because

defendant’s conduct implicated his family members. In particular, as noted above, defendant

tipped some of the material, nonpublic information he obtained to one of his sons in order

to allow his son to illegally profit from purchasing and selling securities. Though his son was

not charged with any criminal offense in this case, he was sued in a civil enforcement action

brought by the SEC.

Defendant also conducted much of his insider trading in accounts he controlled under

the names of other sons or under the name of his wife’s family trust, for which he served as

the trustee. Such actions were designed to hide from Deloitte and regulatory agencies

defendant’s insider trading, but also served to cause individuals completely uninvolved in

the scheme to at least initially fall under an umbrella of suspicion, which this Court should

consider when evaluating defendant’s actions. There is no evidence that defendant’s sons

whose accounts he used or the beneficiaries of the trust had knowledge of defendant’s

actions, but he necessarily caused investigative resources to be focused on them by using

accounts in their names to conduct his illegal trading.

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Third, defendant took other sophisticated steps to hide his insider trading from

individuals at Deloitte. For example, defendant submitted to Deloitte personnel who

prepared his personal federal and state income taxes false information regarding his trading

activities. While defendant accurately reported the gains on all transactions, he listed trades

in other companies in place of Walgreens, Best Buy, and Sears, so that he could hide that he

had interest in, and was trading based on inside information of, Deloitte clients in which he

was restricted from conducting any securities trading.

Finally, at the time defendant committed his crimes, he was a partner at one of the

largest accounting firms and misappropriated information he had access to from publicly-

traded Fortune 500 companies. Thus, the victim in this case is not only the capital markets

themselves, but also includes Deloitte, who suffered the reputational damage of having a

partner breach his fiduciary duty to clients, and the clients themselves whose confidential

information was misappropriated. That makes this case much more than a garden-variety

insider trading case, and it should be reflected in defendant’s sentence.

C. Defendant’s History and Characteristics Do Not Outweigh the SeriousNature of the Crime at Issue

In his version of the offense, defendant focuses his argument for a sentence

substantially below the advisory Guidelines range on his community and charitable service,

issues regarding his wife’s health, and the collateral consequences of his conviction.

Certainly the Court can consider all of these issues as mitigating factors in determining

defendant’s sentence. But these issues do not rise to the level in which they outweigh other

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§ 3553(a) factors or other of the defendant’s characteristics to justify the sentence defendant

seeks.

Defendant details his community and charitable service in his version of the offense.

While his acts are commendable, the Court should keep in mind that defendant’s wealth and

the very position of trust at Deloitte that he abused afforded him the opportunity to act so

generously. As the Seventh Circuit has stated:

Wealthy people make gifts to charity. They are to be commended for doingso but should not be allowed to treat charity as a get-out-jail card . . . .[C]haritable works must be exceptional before they will support a more-lenientsentence, for . . . it is usual and ordinary, in the prosecution of similar whitecollar crimes involving high-ranking corporate executives . . . to find that adefendant was involved as a leader in community charities, civicorganizations, and church efforts. People who donate large sums because theycan should not gain an advantage over those who do not make such donationsbecause they cannot.

United States v. Vrdolyak, 593 F.3d 676, 682-83 (7th Cir. 2010) (internal citations omitted).

With respect to defendant’s wife’s health and the collateral consequences of his

conviction, the Court must weigh these issues not only against the other § 3553(a) factors,

but also against defendant’s other characteristics. In particular, defendant chose to repeatedly

commit fraud not because of financial need but instead based on greed and arrogance. See,

e.g., United States v. Anderson, 517 F.3d 953, 966 (7th Cir. 2008) (noting that district court

considered that defendant was “well off financially and could have relaxed and enjoyed his

golden years” and that “[w]hile many criminals commit crimes from lack of opportunity and

desperation, [defendant] acted out of greed.”). Defendant is highly educated and was a

successful professional. He graduated Magna Cum Laude from the University of Notre

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Dame with a degree in business administration-accountancy. He then obtained a Master of

Business Administration degree from Northwestern University, graduating with distinction.

He was a licensed Certified Public Accountant from 1970 to 2010, and began working at

Deloitte in 1970. He was a partner from 1978 to 2010. Defendant’s education, experience,

and financial condition make clear that he absolutely knew better than to do what he did, and

his crimes are all the more egregious given his stature in society.

The situation regarding defendant’s wife’s health and the collateral consequences of

his conviction are unfortunate, but do not materially differ from circumstances that each and

every defendant sentenced by the Court faces. That is why, presumably, with respect to

family needs, the Sentencing Commission has expressed in a policy statement that family ties

and responsibilities are “not ordinarily relevant in determining whether a departure may be

warranted.” U.S.S.G. § 5H1.6. Moreover, with respect to the collateral consequences of

defendant’s conviction, those collateral consequences are similar to those faced by every

white-collar defendant, and do not serve as an individualized mitigating factor related to

defendant.

D. A Sentence at the Low-End of the Guidelines Will Provide AdequateDeterrence to Others

The need to afford adequate deterrence to others is a critical part of the sentence to be

imposed in this case for a number of reasons. First and foremost, insider trading is the exact

type of crime in which deterrence matters. Insider trading is often a crime committed by

affluent and well-educated defendants. In this case, as in most insider trading cases, it was

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not a crime of need or passion. It was a crime based on greed and an arrogant belief that

defendant would not be caught. Crimes of this nature can be deterred with punishment that

includes terms of incarceration. Other would-be defendants who are thinking about using

their positions of trust to misappropriate material, non-public information will think twice

if they believe their actions will have serious consequences. These consequences cannot

simply be disgorgement of ill-gotten gains or the payment of fines. Instead, the consequences

need to include more than mere token sentences of incarceration to be effective in deterring

others.

Similarly, because insider trading cases are difficult to detect and prove, it is also

particularly important that sentences in this and other insider trading cases serve to deter

individuals from committing the same crime. See United States v. Heffernan, 43 F.3d 1144,

1149 (7th Cir. 1994) (“Considerations of (general) deterrence argue for punishing more

heavily those offenses that either are lucrative or are difficult to detect and punish, since both

attributes go to increase the expected benefits of a crime and hence the punishment required

to deter it.”).

A sentence at the low-end of the Guidelines serves the goal of deterrence in this case.

Such a sentence would be a strong message to other would-be insider trading defendants that

their conduct is serious and will be punished accordingly.

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E. Policy Statements from the Sentencing Commission Favor a Sentence atthe Low-End of the Guidelines

Policy statements from the Sentencing Commission, along with recent proposed

amendments to the Sentencing Guidelines based on Congressional directives, make clear that

insider trading is a crime warranting a significant sentence of incarceration. The

Commission’s policy as to white-collar offenses such as insider trading is set forth in

Guideline Chapter 1 Part A, introductory comment 4(d):

Under pre-guidelines sentencing practice, courts sentenced to probation aninappropriately high percentage of offenders guilty of certain economiccrimes, such as theft, tax evasion, antitrust offenses, insider trading, fraud, andembezzlement, that in the Commission’s view are “serious.”

The Commission’s solution to this problem has been to write guidelinesthat classify as serious many offenses for which probation previously wasfrequently given and provide for at least a short period of imprisonment insuch cases. The Commission concluded that the definite prospect of prison,even though the term may be short, will serve as a significant deterrent,particularly when compared with pre-guidelines practice where probation, notprison, was the norm.

As further elaborated by then Circuit Judge, now Supreme Court Justice, Stephen

Breyer, who served on the Sentencing Commission when the Guidelines were drafted:

A second area of traditional compromise involves the Commission’sdecision to increase the severity of punishment for white-collar crime. TheCommission found in its data significant discrepancies between pre-Guidelinespunishment of certain white-collar crimes, such as fraud, and other similarcommon law crimes, such as theft. The Commission’s statistics indicated thatwhere white-collar fraud was involved, courts granted probation to offendersmore frequently than in situations involving analogous common law crimes;furthermore, prison terms were less severe for white-collar criminals who didnot receive probation. To mitigate the inequities of these discrepancies, theCommission decided to require short but certain terms of confinement formany white-collar offenders, including tax, insider trading, and antitrustoffenders, who previously would have likely received only probation.

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Stephen Breyer, The Federal Sentencing Guidelines and the Key Compromises Upon Which

They Rest, 17 Hofstra L. Rev. 1, 20-21 (1988).

The Sentencing Commission’s sentencing philosophy on white-collar cases is further

reinforced through amendments the Sentencing Commission has proposed to the Guidelines,

including a proposed amendment to § 2B1.4, the insider trading guideline. The amendments

stem from the Dodd-Frank Wall Street Reform and Consumer Protection Act, which directed

the Sentencing Commission to amend the Guidelines related to securities fraud to, among

other things, emphasize the effectiveness of incarceration in deterring others. See Pub. L.

111-203, Section 1079A(a)(1)(B)(i)(I)-(III) (2010).

Pursuant to the Dodd-Frank Act, the Sentencing Commission has proposed

amendments to Guideline § 2B1.4. See United States Sentencing Commission, Amendments

to the Sentencing Guidelines, at 2, April 30, 2012, available at

http://www.ussc.gov/Legal/Amendments/Reader-Friendly/20120430_RF_Amendments.pdf.

The amendments provide a new specific characteristic for offenses involving an “organized

scheme to engage in insider trading.” Id. In such circumstances, a defendant’s minimum

offense level would be 14. According to the Commission, the amendment “reflects the

Commission’s view that a defendant who engages in considered, calculated, systematic, or

repeated efforts to obtain and trade on inside information (as opposed to fortuitous or

opportunistic instances of insider trading) warrants, at a minimum, a short but definite period

of incarceration.” Id.

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While the amendment would not change defendant’s advisory Guidelines range in this

case because of the amount of defendant’s gain, it is still instructive because it shows that

when, as here, a defendant’s conduct is part of a considered, calculated, systematic, or

repeated effort to obtain and trade on inside information, and not based on happenstance, a

more serious sanction is warranted. Indeed, pursuant to the amendment, a defendant who

engages in illegal insider trading and receives no gain would have an offense level of 12 with

acceptance of responsibility. That would correspond to an advisory Guidelines range of 10-

16 months’ imprisonment, higher than the sentence defendant seeks in this case even though

he gained nearly $500,000 from his pattern of illegal insider trading involving a significant

breach of his fiduciary duty owed to his employer and its clients.

F. The Need to Avoid Unwarranted Sentencing Disparities

Defendant, in his version of the offense, argues that the need to avoid unwarranted

sentencing disparities strongly favors a sentence substantially below the Guidelines range.

In support, defendant cites Sentencing Commission statistics showing that, for example, in

2011 approximately 70% of non-cooperating defendants in insider trading cases received

sentences below the advisory Sentencing Guidelines range.

Defendant, however, fails to explain how sentencing him below the advisory

Guidelines range based on these statistics actually promotes avoiding unwarranted sentencing

disparities. In fact, Seventh Circuit case law is expressly to the contrary. As the Seventh

Circuit has stated, “[t]he best way to curtail ‘unwarranted’ disparities is to follow the

Guidelines, which are designed to treat similar offenses and offenders similarly.” See United

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States v. Bartlett, 567 F.3d 901, 908 (7th Cir. 2009).

Moreover, defendant’s argument does not account for the fact that because a

defendant’s gain correlates to the length of the defendant’s Guidelines range, some insider

trading cases may result in very long advisory Guidelines ranges, which some judges may

find longer than necessary to achieve the goals of sentencing. By way of example, the report

defendant cites in his version of the offense notes the sentences for Zvi Goffer and Raj

Rajaratnam, defendants in separate insider trading cases prosecuted in the Southern District

of New York. Goffer received a ten year sentence, one month below the 121 to 151 month

advisory Guidelines range in his case. Rajaratnam received an eleven year sentence, below

the 235 to 293 month range called for under the advisory Guidelines. Those cases, and

others in which below-Guidelines range sentences were imposed, could be a product of a

substantial sentence of incarceration that falls below the advisory Guidelines range because

the range itself is very high.

By contrast, in this case, defendant’s advisory Guidelines range of 37 to 46 months’

imprisonment provides an accurate barometer for defendant’s prolonged fraudulent conduct

and his egregious breach of his fiduciary duty to his employer and its clients. Defendant

abused a position of trust and a fiduciary duty to his clients when he repeatedly traded based

on inside information he misappropriated. His conduct resulted in profits to himself of nearly

$420,000 and to one of his sons of nearly $50,000. Under those circumstances, a sentence

of 37 months’ imprisonment is both appropriate and reasonable under the § 3553(a) factors.

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III. Conclusion

For the reasons stated above, the government respectfully asks that the Court sentence

defendant at the low-end of the advisory Guidelines range of 37 to 46 months’ imprisonment.

Respectfully submitted,

GARY S. SHAPIROActing United States Attorney

By: /s/ Jason A. Yonan JASON A. YONANAssistant U.S. Attorney219 South Dearborn St., Rm. 500 Chicago, Illinois 60604 (312) 353-4156

Dated: October 19, 2012

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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION __________________________________________ ) SECURITIES AND EXCHANGE ) COMMISSION, ) ) Plaintiff, ) ) v. ) Civil Action No. ) THOMAS P. FLANAGAN, AND ) PATRICK T. FLANAGAN, ) ) Defendants. ) )

COMPLAINT

Plaintiff, Securities and Exchange Commission (“Commission”) alleges:

SUMMARY

1. This case involves repeated insider trading by Thomas P. Flanagan (“Flanagan”),

a former partner and a Vice Chairman at Big Four accounting firm Deloitte and Touche LLP

(“Deloitte”). Flanagan traded in the securities of multiple Deloitte clients on the basis of inside

information that he learned through his duties as a Deloitte partner. The inside information

concerned market moving events such as earnings results, revisions to earnings guidance, sales

figures and cost cutting, and an acquisition. Flanagan’s illegal trading resulted in profits of more

than $430,000.

2. Flanagan also tipped his son Patrick to certain of this material nonpublic

information. Patrick then traded based on that information. Patrick’s illegal trading resulted in

profits of more than $57,000.

Case 1:10-cv-04885 Document 1 Filed 08/04/10 Page 1 of 29

3. Defendants Flanagan and Patrick directly and indirectly engaged in, and unless

enjoined, will continue to engage in transactions, acts, practices, and courses of business which

violate Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 (“Exchange Act”) [15

U.S.C. §§ 78(b) and 78n(e)] and Rules 10b-5 and 14e-3 thereunder [17 C.F.R. §§ 240.10b-5 and

240.14e-3].

4. The Commission brings this action pursuant to Sections 21(d), 21(e), and 21A of

the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78u-1] seeking a permanent injunction,

disgorgement of trading profits plus prejudgment interest, and civil penalties.

JURISDICTION AND VENUE

5. This Court has subject matter jurisdiction over this action pursuant to Sections 21

and 27 of the Exchange Act [15 U.S.C. §§ 78u and 78aa].

6. This Court has personal jurisdiction over the Defendants, and venue is proper in

this Court, because both of the Defendants reside in this District and the acts, transactions,

practices and course of conduct giving rise to the violations alleged in this Complaint occurred in

this District.

DEFENDANTS

7. Thomas P. Flanagan, CPA, age 62, of Chicago, Illinois, is a certified public

accountant licensed to practice in the state of Illinois. He began working at Deloitte’s predecessor

firm in 1970, and was a partner at Deloitte and its predecessor firms from 1978 until September

2008. At the time of his departure from Deloitte, Flanagan was a Vice Chairman in Deloitte’s

Chicago office and had over 35 years of public-company audit experience.

8. Patrick T. Flanagan, age 40, is a resident of Glencoe, Illinois and is Flanagan’s

son. Patrick has an M.B.A. from Northwestern University and has worked in various roles at

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public and private companies. He is currently the Chief Operations Officer for a private

company in the health care industry.

RELEVANT ENTITIES

9. Deloitte & Touche LLP is a Delaware limited liability partnership. Deloitte is a

subsidiary of Deloitte LLP, which is a US member firm of Deloitte Touche Tohmatsu, a Swiss

Verein, that is organized as an association of independent member firms worldwide which

provides professional services under the “Deloitte” brand name. At all relevant times and

continuing to the present, Deloitte has provided auditing services to a variety of companies,

including companies whose securities are registered with the Commission and traded in the U.S.

markets.

10. Best Buy Co., Inc. (“Best Buy”) is a Minnesota corporation based in Richfield,

Minnesota. Its common stock is registered with the Commission pursuant to Section 12(b) of the

Exchange Act and is traded on the New York Stock Exchange and the Chicago Stock Exchange.

11. Motorola, Inc. (“Motorola”) is a Delaware corporation based in Schaumburg,

Illinois. Its common stock is registered with the Commission pursuant to Section 12(b) of the

Exchange Act and is traded on the New York Stock Exchange.

12. Walgreen Company (“Walgreens”) is an Illinois corporation based in Deerfield,

Illinois. Its common stock is registered with the Commission pursuant to Section 12(b) of the

Exchange Act and is traded on the New York Stock Exchange, NASDAQ, and the Chicago

Stock Exchange.

13. Option Care, Inc. (“Option Care”) was a Delaware corporation based in

Buffalo Grove, Illinois. Its common stock was registered with the Commission pursuant to

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Section 12(g) of the Exchange Act [15 U.S.C. §78l(g)] until approximately August 2007, and

was traded on the NASDAQ. Walgreens acquired Option Care in August 2007.

14. Sears Holding Corporation (“Sears”) is a Delaware corporation based in

Hoffman Estates, Illinois. Its common stock is registered with the Commission pursuant to

Section 12(b) of the Exchange Act and is traded on the NASDAQ.

FACTS

A. Background

15. For over 35 years, Flanagan worked at Deloitte and its predecessor firms.

Flanagan served as a Vice Chairman in Deloitte’s Chicago office and as the Advisory Partner on

several of Deloitte’s audit engagements with its large clients.

16. As the Advisory Partner, Flanagan, among other things, served as a liaison

between the audit clients’ management team and the Deloitte audit engagement team, attended

the clients’ Audit Committee meetings, and received and had access to material nonpublic

information regarding the clients’ earnings results and other information.

17. Flanagan served as the Advisory Partner on Deloitte’s audit engagements with

Best Buy, Sears, and Walgreens, and served as a partner on Deloitte’s consulting engagement

with Motorola.

18. Flanagan owned or controlled trading accounts held in his name and jointly with

his wife. He also controlled accounts in the name of his sons Michael L. Flanagan (“Michael”)

and Brien J. Flanagan (“Brien”), and sister-in-law Mia Pascale (“Mia”). He also controlled

trading accounts in the name of the Luke R. Pascale Irrevocable Trust (“Pascale Trust”), a trust

established by his father-in-law for Flanagan’s wife and her siblings. Flanagan is the trustee for

the Pascale Trust. Flanagan had the authority to make trades in all of these accounts.

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19. Patrick owned and controlled several trading accounts in Patrick’s name.

20. Flanagan and Patrick are father and son and have a close relationship. Flanagan

and Patrick spoke on the telephone and emailed each other frequently, served on the board of a

local private high school together, and their families vacationed together. Patrick also sought his

father’s advice on employment and business matters.

B. Flanagan and Patrick Traded on the Basis of Inside Information

21. Between 2003 and 2008, Flanagan made 71 purchases of stock and options in the

securities of Deloitte audit clients. Flanagan made 62 of these purchases in the securities of

Deloitte audit clients while serving as the Advisory Partner on those audits.

22. On at least 9 occasions between 2005 and 2008, Flanagan traded on the basis of

material nonpublic information. Flanagan traded on the basis of material nonpublic information

about Best Buy, Motorola, Sears, and Walgreens. On at least 4 occasions, Flanagan tipped

Patrick who also traded based on this material nonpublic information. Flanagan benefited from

his tips to his son Patrick.

23. Flanagan learned this information through his duties at Deloitte. Flanagan owed a

fiduciary duty of trust and confidence to Best Buy, Motorola, Sears, and Walgreens as well as to

Deloitte to keep this information confidential and not to trade on or disclose this information.

Patrick knew or should have known that the information that Flanagan gave him had been

provided in breach of a fiduciary duty to his father’s clients and to Deloitte.

24. Flanagan made all of these trades in accounts that he owned and in accounts that

he controlled for the benefit of Michael, Brien, Mia, and the Pascale Trust. Patrick made his

trades in accounts that he owned and controlled.

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Insider Trading in Walgreens

25. On October 1, 2007, before the stock market opened, Walgreens publicly

announced that it earned $.40 per share for the fourth quarter of 2007 which ended on August 31,

2007. This was 14.8% less than the $.47 earnings per share that stock market analysts had

forecasted. This was Walgreens’ first earnings decrease in nearly a decade. That day,

Walgreens’ stock price closed at $40.16, a 15% decline from the $47.24 closing price on

September 28, 2007, the previous trading day.

26. Flanagan learned of Walgreens’ lower-than-expected fourth quarter earnings

results prior to the public release of this information and traded on the basis of this information.

He also tipped Patrick about the earnings results before the information became public. Patrick

then purchased Walgreens put options.

27. On the morning of September 25, 2007, a staff member on Deloitte’s Walgreens

engagement team emailed to Flanagan a copy of Walgreens’ income statement for the fourth

quarter of 2007 and fiscal year 2007. The income statement showed that Walgreens had earned

$.40 per share for the fourth quarter of 2007.

28. Later that morning, Flanagan participated in a phone call with the lead

engagement partner, senior manager, and a manager on Deloitte’s Walgreens engagement team

to discuss Walgreens’ fourth quarter and year-end results in advance of Walgreens’ upcoming

earnings press release. The engagement team updated Flanagan about Walgreens’ financial

results, including the $.40 per share earnings figure.

29. During the evening of September 25, 2007, the senior manager sent Flanagan a

draft earnings press release from Walgreens stating that Walgreens had earned $.40 for the fourth

quarter of 2007, which represented a 3.8% decline from the same quarter of the prior year.

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30. Flanagan tipped Patrick to Walgreens’ quarterly earning results before the

information became public. Within 10 minutes of receiving the draft earnings press release,

Flanagan called Patrick twice for a total of five minutes.

31. At 9:26 a.m. on September 26, 2007, Patrick purchased 100 out-of-the-money

Walgreens October put option contracts with a strike price of $45 for $.35 per contract. He paid

$3,585 for these contracts.

32. A put option contract gives its owner the right to sell a specified amount of stock

within a specified time at a specified price (known as the strike price). A put option buyer

typically hopes that the stock will drop in price.

33. Put options are “out-of the-money” when the strike price is lower than the current

market price of the underlying stock at the time of sale. For example, if XYZ stock is trading at

$50, and an investor buys put options with a $45 strike price, the puts are out-of-the-money. By

contrast, put options are “in-the-money” when the strike price is above the current market price.

Options said to be trading “at-the-money” have a strike price that is the same as the underlying

share price. When the strike price is the same or within a few cents of the current market price,

the option is said to be trading “at-the-money.”

34. At 6:08 p.m. on September 27, 2007, Flanagan received an email from

Walgreens’ Controller, in advance of Walgreens’ Audit Committee meeting scheduled for 2 p.m.

the next day. The Controller also sent this email to other expected meeting attendees. The email

contained a link to a secure Walgreens internal website where the email recipients could access

the draft earnings press release and financial statements announcing the $.40 earnings figure and

the meeting agenda. Flanagan forwarded the email to his assistant at 7:12 p.m., with orders that

she print out the documents and hand them to him.

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35. Approximately 40 minutes later, Flanagan called Patrick, speaking for four

minutes.

36. Flanagan called his stock broker at 9:52 a.m. on September 28, 2007, speaking for

four minutes. At 10:40 a.m., Flanagan purchased for the Pascale Trust account 350 out-of-the-

money Walgreens October put option contracts with a strike price of $47½ for $1.079 per

contract. Flanagan paid $39,148 for these contracts.

37. At 9:56 a.m., immediately after speaking with his broker, Flanagan called Patrick.

The call lasted one minute. At 11:40 a.m., Patrick purchased 35 out-of-the-money Walgreens

October put contracts with a strike price of $47½ for $1.10 per contract. He paid $3,886 for

these contracts.

38. On October 1, 2007, after Walgreens issued its earnings press release, Flanagan

sold the 350 put option contracts that he bought in the Pascale Trust account. He sold 175 of the

contracts on October 1 for $7.10 per contract, realizing a profit of $103,362. He sold 85

contracts on October 3 for $7.40 per contract, realizing a profit of $52,629. He sold the

remaining 90 contracts on October 5 for $8 per contract, realizing a profit of $61,338. Flanagan

realized a total profit of $217,329.

39. On October 1, 2007, Patrick sold the 100 put contracts with a $45 strike price for

between $3.60 and $3.80 per contract, and sold the 35 put contracts with a $47.50 strike price for

between $6.20 and $7 per contract. He realized a profit of $50,778.

Insider Trading in Motorola

40. On January 23, 2008, before the stock market opened, Motorola announced in its

fiscal year 2008 earnings press release that sales of mobile devices had declined 38% during the

fourth quarter of 2007, which ended on December 31, 2007, from the fourth quarter of 2006.

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Motorola also announced that it was “aggressively rationalizing the company’s cost structure.”

By the end of the day, Motorola’s stock price closed at $10.01, an 18.75% decline from the

$12.32 closing price on January 22, 2008.

41. Flanagan learned of Motorola’s sharp decline in mobile device sales and its plan

to aggressively cut costs before the public release of this information and traded on the basis of

this information.

42. At the time he learned this information, Flanagan was a partner on Deloitte’s non-

audit consulting engagement with Motorola.

43. On January 3, 2008, a Deloitte partner on the consulting engagement team for

Motorola met with Motorola’s new CEO to provide recommendations for company strategy.

44. The next day, the partner sent an email to Flanagan and several other members of

Deloitte’s Motorola engagement team. The email contained an Associated Press article from that

day concerning an analyst’s report that Motorola’s handset sales had “missed the Christmas

window.”

45. The partner wrote in the subject line of the email, “Motorola Inc. Shares Decline –

At our mtg yersterday (sic) [the CEO] said [Mobile Device] performance ‘will be significantly

worse than anybody imagined’ and a huge across the board cost cutting is in the works.”

46. On the afternoon of January 11, 2008, Flanagan and the partner had a telephone

meeting lasting approximately 30 minutes to discuss the Motorola situation.

47. On the next trading day, January 14, 2008, Flanagan purchased for his own

account 585 out-of-the-money Motorola February put contracts with a strike price of $13 for

$.17 per contract.

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48. On January 23, 2008, shortly after Motorola issued its press release, Flanagan

sold all 585 put option contracts for a total profit of $137,474.

Insider Trading in Option Care

49. On July 2, 2007, Walgreens publicly announced that it had reached an agreement

to acquire Option Care for $19.50 per share. That day, Option Care’s stock price closed at

$19.24 per share, up 25%, from its $15.40 closing price on June 29, 2007, the prior trading day.

50. Flanagan learned about the acquisition agreement before the public release of this

information and traded on the basis of this information. He also tipped Patrick before the

information became public. Patrick then purchased Option Care stock.

51. At the time Flanagan and Patrick traded, substantial steps had been taken to

commence Walgreens’ tender offer for the shares of Option Care stock. Specifically, Walgreens

and Option Care had entered into a confidentiality agreement, hired financial advisors, were

cooperating in Walgreens’ due diligence investigation, exchanged drafts of the acquisition

agreement, and were negotiating the final per share purchase price.

52. At 5 p.m. on June 18, 2007, Flanagan participated in a conference call with the

lead engagement partner, senior manager, and other staff on Deloitte’s Walgreens engagement

team in advance of several meetings with Walgreens executives scheduled for June 20, 2007.

During the call, the Deloitte engagement team informed Flanagan that Walgreens’ acquisition of

Option Care was imminent and that the engagement team was monitoring it. The team also

explained and discussed Option Care’s several business lines with Flanagan.

53. At 5:42 p.m., approximately 10 minutes after the end of the conference call,

Flanagan sent an email to his broker telling him to call Flanagan’s cell phone. Flanagan called

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his broker at 8:19 a.m. on June 19, 2007, speaking for four minutes. His broker called Flanagan

back at 8:49 a.m., speaking for 16 minutes, and again at 9:07 a.m., speaking for two minutes

54. At 9:24 a.m. on June 19, Flanagan purchased 850 shares in Brien’s account for

$15.47 per share and 1,500 shares of Option Care common stock in Michael’s account for $15.48

per share. Flanagan paid a total of $36,790 for these 2,350 shares. Flanagan had never traded in

Option Care before.

55. On June 20, 2007, Flanagan purchased 1,900 Option Care shares for $15.54 per

share in his own account, and 1,900 shares for $15.58 in the Pascale Trust account. Flanagan

paid a total of $59,727 for these 3,800 shares.

56. After he made these stock purchases, Flanagan attended several meetings with

Walgreens executives on June 20, 2007 in advance of Walgreens’ Audit Committee meeting

scheduled for the next day. In one of those meetings, Walgreens’ CEO told Flanagan and

Deloitte’s lead audit engagement partner that Walgreens was soon likely to announce an

agreement to acquire Option Care.

57. Flanagan tipped Patrick about the Option Care acquisition before the information

became public. Flanagan first called Patrick at 5:40 p.m. on June 18, 2007, just before Flanagan

emailed his broker. Flanagan’s call lasted two minutes. Between the June 18, 2007 conference

call and the evening of June 20, 2007, Flanagan and Patrick called each other eight times for a

total of 20 minutes. Flanagan’s last calls to Patrick were on the evening of June 20, 2007, after

Flanagan’s meetings with Walgreens’ executives.

58. On the morning of June 21, 2007, Patrick purchased 1,200 Option Care shares for

$15.40 per share. Patrick paid $18,494 for these shares. Patrick had never traded in Option Care

before.

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59. On July 10, 2007, Flanagan sold all of the Option Care shares in his account and

the accounts he controlled for the Pascale Trust, Michael, and Brien on the morning of July 10,

2007 for between $19.32 and $19.33 per share. Flanagan made a profit of $6,581 in his account,

$6,488 in the Pascale Trust account, $5,246 in Michael’s account, and $2,918 in Brien’s account.

60. Patrick sold 800 Option Care shares on the same day as his father for $19.32 per

share, realizing a profit of $3,114. Patrick sold another 200 shares on July 24, 2007 for $19.39

per share. Patrick received a cash settlement for the remaining 200 shares from Walgreens on

September 12, 2007 for $19.50 per share, as part of the tender offer. In total, Patrick made a

profit of $4,714.

Insider Trading in Sears

61. On May 29, 2008, before the stock market opened, Sears publicly announced an

earnings loss of $.43 per share for the first quarter, which ended May 3, 2008. Stock market

analysts had previously estimated that Sears would report a first quarter profit of $.21 per share.

On May 29, 2008, Sears’ stock price closed at $86.14 per share, a 3.6% decline from the $89.36

closing price on May 28, 2008.

62. Flanagan learned of Sears’ lower-than-expected first quarter earnings per share

results prior to the public release of this information and traded on the basis of this information.

He also tipped Patrick before the information became public. Patrick then purchased Sears put

options.

63. On May 16, 2008, the lead engagement partner on Deloitte’s Sears engagement

team sent Flanagan an email containing the first draft of Sears’ earnings press release. The

release described Sears’ earnings results for the first quarter and included the $.43 per share

earnings loss.

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64. On the morning of May 19, 2008, the first trading day after he received the lead

engagement partner’s email, Flanagan purchased for the Pascale Trust account 85 out-of-the-

money Sears June put contracts with a strike price of $90 for $3.60 per contract. Flanagan paid

$31,020 for these contracts.

65. Flanagan tipped Patrick about Sears’ unexpected earnings loss before the

information became public. Between May 17, 2008 and Monday, May 25, 2008, Flanagan and

Patrick spoke 15 times on the phone for a total of 43 minutes.

66. On May 22, 2008, Flanagan received an email from Sears’ Assistant Controller in

advance of a Sears’ Audit Committee teleconference scheduled for May 28, 2008. Documents

attached to the email included the draft press release, financial statements for the quarter, and the

draft Form 10-Q to be filed with the Commission. All of these documents contained the $.43 per

share earnings loss figure.

67. At 8:00 a.m. on May 28, 2008, Flanagan attended the Sears Audit Committee

teleconference meeting, during which the quarterly earnings report was discussed in detail.

68. At 9:31 a.m. on May 28, 2008, Patrick called Flanagan. At 9:59 a.m., less than an

hour after the Audit Committee meeting ended, Flanagan called Patrick. They spoke for two

minutes.

69. At 10:07 a.m., six minutes after hanging up with his father, Patrick logged into his

on-line trading account. This was the first time Patrick had accessed his account that day.

70. At 10:34 a.m., Patrick bought 40 out-of-the-money Sears June put option

contracts with a strike price of $85 for $3.40 per contract. Patrick paid $13,639 for these

contracts. Patrick had never traded in Sears before.

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71. On the afternoon of May 29, 2008, after Sears issued its earnings press release,

Patrick sold 20 of his put option contracts for a loss of $1,343.

72. On May 30, 2008, Flanagan sold all of his 85 put option contracts for $7 each, for

a profit of $27,946.

73. On June 6, 2008, Patrick sold the remaining 20 put option contracts at $4.70 each

for a profit of $2,547.

Insider Trading in Best Buy

I. Best Buy Q3 2006 Earnings Release (December 2005)

74. On December 13, 2005, before the stock market opened, Best Buy publicly

announced that it earned $.28 per share for the third quarter of 2006 which ended on November

26, 2005. The quarterly earnings per share was at the low end of the $.28 to $.32 earnings per

share range that Best Buy had previously provided in its earnings guidance. Best Buy’s earnings

per share were also 6.7% less than the $.30 per share that stock market analysts had forecasted.

On December 13, 2005, Best Buy’s stock price closed at $43.94, an 11.8% decline from its

$49.84 closing price on December 12, 2005.

75. Flanagan learned of Best Buy’s less-than-expected third quarter earnings per

share results prior to the public release of this information and traded on the basis of this

information.

76. On the morning of December 8, 2005, Flanagan received an email from the

assistant to Best Buy’s Vice President of Finance, Planning & Reporting Management in

advance of Best Buy’s Audit Committee’s pre-earnings release conference call scheduled for the

afternoon of December 9, 2005. Documents attached to this email included the Third Quarter

Performance Summary, Consolidated Statement of Earnings, and the Consolidated Condensed

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Balance Sheets. All of these documents contained Best Buy’s third quarter earnings results of

$.28 per share. The Performance Summary also contained the $.30 earnings per share figure

forecasted by stock market analysts.

77. Later that same morning, Flanagan received another email from the assistant

containing the same documents.

78. On the morning of December 9, 2005, Flanagan purchased 13 out-of-the-money

Best Buy March put option contracts with a strike price of $47½ for $2.70 per contract for Mia’s

account. Flanagan paid $3,684 for these contracts.

79. On December 14, 2005, the day after Best Buy publicly announced its earnings

results, Flanagan sold all 13 put option contracts for $4.90 per contract and realized a profit of

$2,480.

II. Best Buy’s Q3 2007 Earnings Press Release (December 2006)

80. On December 12, 2006, before the stock market opened, Best Buy publicly

announced that it earned $.31 per share for the third quarter of 2007 which ended on November

25, 2006. This was 11.4% less than the $.35 earnings per share that stock market analysts had

forecasted. On December 12, 2006, Best Buy’s stock price closed at $51.30, a 4.9% decline

from the $53.92 closing price on December 11, 2007.

81. Flanagan learned of Best Buy’s lower-than-expected third quarter earnings results

prior to the public release of this information and traded on the basis of this information. He also

tipped Patrick before the information became public. Patrick then purchased Best Buy put

options.

82. In the early afternoon of December 8, 2006, Flanagan received an email from the

assistant to Best Buy’s Vice President of Finance, Planning & Reporting Management (“Vice

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President of Finance”) in advance of the Audit Committee’s pre-earnings release conference call

scheduled for the morning of December 11, 2006. The assistant also sent this email, which was

labeled “Confidential,” to other expected meeting attendees. Documents attached to this email

included the Third Quarter Performance Summary, Consolidated Statement of Earnings, and the

Consolidated Condensed Balance Sheets. All of these documents contained Best Buy’s quarterly

earnings results of $.31 per share. The Performance Summary also contained the $.35 per share

earnings forecasted by stock market analysts.

83. Approximately two hours later, Flanagan and other expected meeting attendees

received an email, labeled “Confidential,” from Best Buy’s Vice President for Finance

containing Best Buy’s current year-to-date results, its original annual earnings guidance for fiscal

year 2007, and its updated earnings guidance.

84. Later on the evening of December 8, 2006, a Deloitte partner on the Best Buy

engagement team forwarded the assistant’s email to Flanagan and other members of the Deloitte

engagement team.

85. On Saturday, December 9, 2006, Flanagan tipped Patrick about Best Buy’s

earnings results before the information became public. Telephone records show that Flanagan

called Patrick three times that day for a total of 11 minutes.

86. At the stock market’s opening on Monday, December 11, 2006, the first trading

day after he learned the earnings results from his father, Patrick bought 35 out-of-the-money

Best Buy December put option contracts with a strike price of $52.50 for $1.25 per contract for

his account. At the same time, Patrick also purchased 15 out-of-the-money Best Buy December

put option contracts with a strike price of $55 for $2.50 per contract for his account. Patrick paid

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a total of $8,182 for these 50 contracts. All of these contracts were set to expire on December

16, 2006.

87. Patrick purchased these contracts with the intention of selling them immediately

after Best Buy publicly announced its earnings results because he already knew what Best Buy

would announce for its earnings results. At 9:24 p.m. on December 11, 2006, Patrick created an

entry on his electronic calendar for 7:15 a.m. on December 12, 2006 that read, “Schwab –

closing bby.” BBY is Best Buy’s stock ticker symbol.

88. At 9:40 a.m., Flanagan bought for the Pascale Trust account 40 out-of-the-money

Best Buy December put option contracts with a strike price of $55 for $2.38 - $2.40 per contract.

Flanagan paid $9,871 for these contracts. These contracts were set to expire on December 16,

2006.

89. On December 12, 2006, shortly after Best Buy issued its press release announcing

its earnings, Flanagan and Patrick sold all their put option contracts. Flanagan sold his contracts

for $4.01 per contract for a profit of $5,836. Patrick sold his contracts for a profit of $2,270.

III. Best Buy’s Q1 2008 Earnings Press Release (June 2007)

90. On June 19, 2007, before the stock market opened, Best Buy publicly announced

that it earned $.39 per share for the first quarter of 2008 which ended on June 2, 2007. This

represented an 18% decline from the prior year’s first quarter earnings per share and was 22%

lower than the stock market analysts’ consensus estimate of $.50 per share. On June 19, 2007,

Best Buy’s stock price closed at $45.18, a 5.9% decline from the $48.01 closing price on June

18, 2007.

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91. Flanagan learned of Best Buy’s lower-than-expected first quarter earnings per

share results prior to the public release of this information and traded on the basis of this

information.

92. On June 15, 2007, Flanagan received an email from the assistant to Best Buy’s

Vice President of Finance in advance of Best Buy’s Audit Committee pre-earnings release

conference call scheduled for the afternoon of June 18, 2007. Documents attached to this email

included the Third Quarter Performance Summary, Consolidated Statement of Earnings, and the

Consolidated Condensed Balance Sheets. All of these documents contained Best Buy’s quarterly

earnings of $.39 per share. The Performance Summary also contained the $.50 per share

earnings figure estimated by stock market analysts.

93. At 8:00 a.m. on Monday, June 18, 2007, the first trading day after he received this

email, Flanagan bought for his own account 210 out-of-the-money Best Buy August put option

contracts with a strike price of $45 for $.95 per contract. He also bought 315 of the same

contracts at the same price for the Pascale Trust account. Flanagan paid a total of $51,479 for

these 525 contracts.

94. Flanagan sold 150 of the put option contracts in the Pascale Trust account for

$1.15 per contract on June 19, 2007, approximately two hours after Best Buy issued its earnings

press release, realizing a profit of $2,029.

95. He sold the remaining 165 put options in the Pascale Trust account for $1.35 per

contract on June 20, 2007, realizing a profit of $5,538.

96. Flanagan also sold the 210 put options in his account for $1.35 per contract on

June 20, 2007, realizing a profit of $7,025.

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IV. Best Buy’s Press Release (February 2008) 97. On February 15, 2008, before the stock market opened, Best Buy issued a press

release announcing a reduction to its fiscal year 2008 earnings forecast from a previous range of

$3.10 to $3.20 per share to a range of $3.05 to $3.10. Best Buy cited weaker-than-expected

revenue growth from January sales in several major categories. Best Buy also lowered its

anticipated annual stores sales gains from approximately 4% to a range of 2.5% to 3%. Best Buy

also announced that its fourth quarter revenue would fall short of its internal targets. On

February 15, 2008, Best Buy’s stock price closed at $44.62, a 2.5% decline from the $45.77

closing price on February 14, 2008.

98. Prior to the issuance of the press release, Best Buy had not announced the weaker-

than-expected revenue growth from January sales, lower anticipated annual stores sales gains,

and fourth quarter revenue shortfall. Best Buy had publicly reiterated its 2008 earnings guidance

of $3.10 to $3.20 per share a month earlier on January 11, 2008.

99. Flanagan learned that Best Buy was going to announce a reduction to its 2009

earnings and annual store sales gain guidance, and the fourth quarter revenue shortfall prior to

the public announcement and traded on the basis of that information.

100. On February 12, 2008 at 7:45 p.m., the lead engagement partner on the Best Buy

engagement team sent an email to Flanagan and another member of Deloitte’s engagement team.

The lead engagement partner attached a draft of Best Buy’s February 15, 2008 press release.

The draft press release included the same information regarding Best Buy’s weaker-than-

expected revenue growth from January sales, lower anticipated annual stores sales gains, and

fourth quarter revenue shortfall that was contained in Best Buy’s press release issued to the

public.

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101. In her email, the lead engagement partner provided a summary of the earnings

guidance figures for fiscal year 2008 that Best Buy had previously provided to the public. The

summary also contained the reduced earnings guidance figures for fiscal year 2008 that Best Buy

included in its draft and final February 15, 2008 press releases. The lead engagement partner

also stated in her email that, “… sales fell off a cliff in the last month with superbowl (sic)

missing all expectations…”

102. That night, Flanagan replied to the lead engagement partner’s email, directing her

to call him on February 13 or 14, 2008.

103. When the stock market opened on February 13, 2008, Flanagan purchased 100

out-of-the-money Best Buy March put contracts with a strike price of $45 for the Pascale Trust

account for $1.95 per contract. He also purchased 50 Best Buy March put contracts with a strike

price of $45 for his own account for $1.95 per contract. Flanagan paid a total of $28,850 for

these 150 contracts.

104. Flanagan sold all 100 put contracts in the Pascale account for between $2.30 and

$2.34 per contract on March 5, 2008, realizing a profit of $2,823.

105. Flanagan also sold all 50 put contracts in his own account for between $2.65 and

$2.72 per contract on March 5, 2008, realizing a profit of $3,011.

V. Best Buy’s Q4 Earnings Press Release (April 2008)

106. On April 2, 2008, before the stock market opened, Best Buy publicly announced

that it earned $1.71 per share for the fourth quarter of 2008 which ended on March 1, 2008. This

represented a 10% increase from the prior year’s fourth quarter earnings per share and was 4%

higher than the stock market analysts’ consensus estimate of $1.65 earnings per share. On April

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2, 2008, Best Buy’s stock price closed at $43.94, a 1.08% increase from the $43.47 closing price

on April 1, 2008.

107. Flanagan learned of Best Buy’s higher-than-expected fourth quarter earnings prior

to its public release and traded on the basis of this information.

108. On March 28, 2008, Flanagan received an email from a Best Buy employee in

advance of Best Buy’s Audit Committee pre-earnings release conference call scheduled for the

afternoon of March 31, 2008. Documents attached to the email included the Fiscal 2008 Fourth

Quarter Performance Summary and the Condensed Consolidated Statement of Earnings. Both

documents included the $1.71 per share earnings figure. The Performance Summary also

contained the stock market analysts’ consensus earnings estimate of $1.65 per share.

109. That afternoon, Flanagan forwarded this email to his assistant with orders to print

the attached documents.

110. On March 31, 2008, Flanagan attended the Audit Committee conference call,

during which the earnings results and the stock market analysts’ estimates were discussed.

111. On April 1, 2008, Flanagan bought for the Pascale Trust account 165 Best Buy

May call option contracts with a strike price of $42.50 for $2.45 per contract. Flanagan also

bought for his own account 85 Best Buy May call option contracts with a strike price of $42.50

for $2.45 per contract. Flanagan paid a total of $62,264 for these 250 contracts.

112. A call option contract gives its owner the right to buy a specified amount of stock

within a specified time at a specified price (known as the strike price). A call option buyer

typically hopes that the stock will rise in price.

113. On April 2, 2008, after Best Buy issued its press release, Flanagan sold 82 of the

call options in the Pascale Trust account for $3.20 per contract, realizing a profit of $5,441.

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Flanagan exercised the remaining 83 calls on May 16, 2008. By exercising the calls, Flanagan

bought the 8,300 underlying shares of Best Buy stock. He then sold the 8,300 shares on May 19,

2008 for a loss of $6,919. If Flanagan had instead sold the remaining 83 option contracts in the

Pascale Trust account at the close of trading on April 2, 2008, he would have made a profit of

$6,988.

114. Flanagan exercised the 85 call options in his account on May 19, 2008 and sold

the resulting 8,500 shares the same day for $44.52 per share for a realized loss of $7,356. If

Flanagan had sold the 85 option contracts in his account at the close of trading on April 2, 2008,

he would have made profit of $5,525.

C. Flanagan Concealed His Trading in the Audit Clients’ Securities and Circumvented Deloitte’s Independence Compliance System

115. Flanagan was required to comply with the Commission’s auditor independence

rules with respect to the Deloitte audit clients he served as the Advisory Partner. Flanagan was

also required to comply with the Commission’s auditor independence rules with respect to

certain other Deloitte audit clients because he worked in the same office as the lead partner on

those audits.

116. Under the Commission’s auditor independence rules, accountants are not

independent as to an audit client if, among other things, the accounting firm, or any covered

person in the firm, or any of his or her immediate family members, has a direct investment in the

audit client, such as stocks, bonds, notes, options, or other securities, or if the accountant serves

as the voting trustee of a trust containing securities of an audit client. Flanagan was a covered

person as to Best Buy, Sears, and Walgreens.

117. Flanagan knew and understood the Commission’s auditor independence rules.

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118. Between 2003 and 2008, Flanagan made 71 purchases of stock and options in the

securities of Deloitte audit clients in violation of the Commission’s auditor independence rules.

Flanagan made 62 of these purchases in the securities of Deloitte audit clients while serving as

the Advisory Partner on those audits. These purchases include the trades Flanagan made on the

basis of material nonpublic information in Best Buy, Sears, and Walgreens described above.

Flanagan made all of these purchases in accounts he owned, or in accounts he controlled for the

benefit of Michael, Brien, and Mia, and in the Pascale Trust account.

119. At all relevant times, Deloitte had policies and quality control procedures in place

designed to ensure that its professional personnel maintain their independence relative to

Deloitte’s audit clients. Deloitte’s independence policies and procedures were primarily

contained in Deloitte’s Independence Manual.

120. Flanagan knew and understood Deloitte’s independence policies and procedures.

Flanagan circumvented these policies and procedures.

121. Deloitte’s independence policies and procedures required, among other things,

that its professional staff, including partners, self-report all of their securities holdings and

trading activities. These professionals were also required to report all securities trades that they

made as a trustee for accounts that they controlled. Deloitte created the Deloitte Entity Search

and Compliance system (“DESC”) and the Tracking and Trading system (“Tracking and

Trading”) for its professional staff to use to report these transactions.

122. The DESC contained a “Restricted Entity List,” which contained the names of all

companies, banks, brokerage firms, and other institutions that Deloitte prohibited its professional

staff from, among other things, having a financial interest in or maintaining an account. All of

Deloitte’s audit clients within the United States, including the audit clients at issue here, were

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included in the Restricted Entity List, which Deloitte updated regularly. Prior to making a

securities trade, Deloitte required its professional staff to access the DESC and Restricted Entity

List to verify that the company, brokerage firm, or other entity involved in the transaction was

not restricted. After completing the transaction, its professional staff had 10 calendar days to

report it to Deloitte via Tracking and Trading.

123. Deloitte’s Independence Manual also contained Deloitte’s policy prohibiting

insider trading and the disclosure of inside information.

124. Deloitte required its professional staff to file annual Independence

Representations and affirm between 30 and 50 specific statements. These statements concerned

the staff member’s financial transactions during the previous year, understanding of, and

compliance with, Deloitte’s independence policies, and other topics. If the staff member

responded to a statement with anything other than “Agree,” the staff member had to provide a

written explanation, which Deloitte’s Independence and Ethics Compliance Group then

reviewed.

125. Beginning in 2007, Deloitte’s professional staff had to affirm in their

Independence Representations that they had read and understood Deloitte’s policies related to

insider trading. Flanagan did so in October 2007.

126. Flanagan concealed from Deloitte his trades in the securities of Deloitte’s clients,

including those described in this Complaint, by failing to report these trades in the Tracking and

Trading System. He also failed to report the existence of several trading accounts he owned or

controlled, including those in which he made the trades described in this Complaint.

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127. Flanagan also lied to Deloitte about his compliance with Deloitte’s independence

policies. In the Independence Representations he filed in 2004, 2005, 2006, and 2007, Flanagan

falsely affirmed that:

a. Tracking and Trading accurately reflected the brokerage accounts and financial

interests held or controlled by Flanagan;

b. at no time during the representation period did he have a financial interest in a

Restricted Entity; and

c. he had not served as a trustee, executor, or administrator of an estate that had a

financial interest in a Restricted Entity.

128. In fact, Flanagan owned or controlled several brokerage accounts, and owned and

controlled stocks and options, which he had not reported in Tracking and Trading. He also

owned or controlled stocks and options in Restricted Entities, including the Deloitte clients for

whom he served as an Advisory Partner. In addition, Flanagan served as the trustee for a family

trust and controlled brokerage accounts in the name of that trust and in the name of other family

members. Flanagan traded in the securities of Restricted Entities in several of these accounts.

129. Flanagan’s efforts to conceal from Deloitte his trades in the securities of Deloitte

clients extended to the furnishing of false information in the preparation of his personal income

tax returns. He utilized Deloitte Tax LLP (“Deloitte Tax”) to prepare his tax returns. Flanagan

provided Deloitte Tax personnel with the names of the securities he purportedly traded during

the tax year, the trade dates, and his gains or losses. For the tax years 2004 through 2007,

Flanagan substituted the names of Deloitte audit clients whose securities he traded in with the

names of other entities for which he had no trading restrictions. Between 2004 and 2007,

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Flanagan substituted unrestricted company names for 13 trades that he made in the securities of

seven Deloitte clients, including Best Buy, Sears, and Walgreens.

CLAIMS FOR RELIEF

CLAIM ONE

Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder (Against Defendants Thomas P. Flanagan and Patrick T. Flanagan)

130. The Commission realleges and incorporates by reference Paragraphs 1 through

129 as though fully set forth herein.

131. During the relevant time periods, Defendant Thomas P. Flanagan, in connection

with the purchase and sale of Best Buy, Motorola, Option Care, Sears, and Walgreens securities,

by use of the means and instrumentalities of interstate commerce and of the mails, directly and

indirectly: employed devices, schemes and artifices to defraud, made untrue statements of

material facts and omitted to state material facts necessary in order to make the statements made,

in the light of the circumstances under which they were made, not misleading; and engaged in

acts, practices and courses of business which operated as a fraud and deceit upon the purchasers

and sellers of such securities.

132. During the relevant time periods, Defendant Patrick T. Flanagan, in connection

with the purchase and sale of Best Buy, Option Care, Sears, and Walgreens securities, by use of

the means and instrumentalities of interstate commerce and of the mails, directly and indirectly:

employed devices, schemes and artifices to defraud, made untrue statements of material facts and

omitted to state material facts necessary in order to make the statements made, in the light of the

circumstances under which they were made, not misleading; and engaged in acts, practices and

courses of business which operated as a fraud and deceit upon the purchasers and sellers of such

securities.

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133. Both Defendants acted with scienter when he engaged in the conducted alleged

above.

134. As a result of the activities described above, the Defendants violated Section

10(b) of the Exchange Act [15 U.S.C. § 78(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-

5].

CLAIM TWO

Violations of Section 14(e) of the Exchange Act and Rule 14e-3 Thereunder (Against Defendants Thomas P. Flanagan and Patrick T. Flanagan)

135. The Commission realleges and incorporates by reference Paragraphs 1 through 9,

12, 13, 15 through 24, 49 through 60, and 115 through 129 as though fully set forth herein.

136. Prior to the public announcement of the tender offer for Option Care, and after a

substantial step or steps to commence the tender offer had been taken, Defendant Thomas P.

Flanagan purchased securities of Option Care while in possession of material information

relating to the tender offer, which information he knew or had reason to know was nonpublic and

had been acquired directly or indirectly from a person acting on behalf of the offering person; the

issuer of the securities sought or to be sought by the tender offer; or an officer, director, partner,

employee, or other person acting on behalf of the offering person or such an issuer.

137. Prior to the public announcement of the tender offer for Option Care, and after a

substantial step or steps to commence the tender offer had been taken, Defendant Thomas P.

Flanagan, while in possession of material information relating to the tender offer, which

information he knew or had reason to know was nonpublic and had been acquired directly or

indirectly from a person acting on behalf of the offering person; the issuer of the securities

sought or to be sought by the tender offer; or an officer, director, partner, employee, or other

person acting on behalf of the offering person or such issuer, communicated material nonpublic

27

Case 1:10-cv-04885 Document 1 Filed 08/04/10 Page 27 of 29

information relating to the tender offer to Patrick under circumstances in which it was reasonably

foreseeable that the communication was likely to result in the purchase of securities of Option

Care.

138. Prior to the public announcement of the tender offer for Option Care, and after a

substantial step or steps to commence the tender offer had been taken, Defendant Patrick T.

Flanagan purchased securities of Option Care, while in possession of material information

relating to the tender offer, which information he knew or had reason to know was nonpublic and

had been acquired directly or indirectly from a person acting on behalf of the offering person; the

issuer of the securities sought or to be sought by the tender offer; or an officer, director, partner,

employee, or other person acting on behalf of the offering person or such an issuer.

139. By virtue of the foregoing, the Defendants violated Section 14(e) of the Exchange

Act [15 U.S.C. § 78n(e)] and Rule 14e-3 [17 C.F.R. § 240.14e-3] thereunder.

RELIEF REQUESTED

WHEREFORE, the Commission respectfully requests that the Court:

a. permanently enjoin Defendants Thomas P. Flanagan and Patrick T. Flanagan from

violating Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-

3 thereunder;

b. order Defendant Thomas P. Flanagan to disgorge with prejudgment interest all ill-

gotten gains received as a result of the conduct alleged above, including the

trading profits in his accounts and accounts which he controlled and, on a joint

and several basis, Patrick’s trading profits;

28

Case 1:10-cv-04885 Document 1 Filed 08/04/10 Page 28 of 29

29

c. order defendant Patrick T. Flanagan to disgorge with prejudgment interest all ill-

gotten gains received as a result of the conduct alleged above, including his own

trading profits on a joint and several basis with defendant Thomas P. Flanagan;

d. order Defendants Thomas P. Flanagan and Patrick T. Flanagan to pay civil

monetary penalties pursuant to Section 21A of the Exchange Act, and;

e. grant such other and further relief as the Court deems just and appropriate.

Respectfully submitted, DATED: August 4, 2010 s/ Steven L. Klawans STEVEN L. KLAWANS JAMES G. O’KEEFE Attorneys for Plaintiff

U.S. SECURITIES AND EXCHANGE COMMISSION 175 West Jackson Boulevard, Suite 900

Chicago, Illinois 60604 Telephone: (312) 886-1738 (Klawans) Telephone: (312) 886-2239 (O’Keefe) Facsimile: (312) 353-7398 Email: [email protected] Email: [email protected]

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