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Beaufort mayor settles insider trading case

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BEAUFORT -- Facing a charge of insider trading, Beaufort Mayor Bill Rauch agreed Wednesday to pay $44,000 to settle the case brought by the U.S. Securities and Exchange Commission. He admitted no wrongdoing in agreeing to the settlement.

Rauch, who has been mayor since 1999, serves on a business development board for Los Angeles-based Advanced Cell Technology and in 2005 agreed to refer investors to the company in exchange for stock options and a percentage of the money raised through his referrals.

In those roles, Rauch obtained confidential information about a new technique for creating human stem cell lines that later caused the company's stock price to increase by about 360 percent, according to the SEC. Before the information was released to the public, he bought more than $11,000 worth of Advanced Cell Technology stock, according to authorities.

Rauch, who said last month he will not run for re-election in November, saidWednesday his decision to settle with the SEC was "simply a matter of practicality."

"In this settlement between Mr. Rauch and the U.S. Securities and Exchange Commission, Mr. Rauch neither admits nor denies any wrongdoing and his decision to settle was largely a matter of practicality," said Rauch's lawyer, Ralph E. Tupper, who also is a Beaufort municipal judge, in a press release. "To settle cost Mr. Rauch approximately $44,000, but to litigate against the SEC would have cost Mr. Rauch much more."

Eric Brooks, staff attorney for the SEC, said "the way settlements work with the SEC" is that defendants neither admit nor deny wrongdoing.

The SEC contends Rauch learned from an Advanced Cell Technology executive in August 2006 that the company would publish an article in the science journal "Nature" that would reveal a technique for creating stem cell lines without harming embryos, which the company thought could alleviate concerns about the technology.

Rauch was told about the technique Aug. 3, 2006, according to the SEC. The same day, Rauch set up brokerage accounts in his name and the names of his six children, the SEC said.

Then, on Aug. 9 and Aug. 14, he bought $11,162 worth of Advanced Cell Technology stock in his children's names at prices ranging from $0.30 per share to $0.36 per share, the SEC said.

On Aug. 23, Advanced Cell Technology publicly disclosed its breakthrough, and the price of its stock on the OTC Bulletin Board jumped from $0.40 per share to $1.83 per share. The value of Rauch's $11,162 investment soared to $60,683.

The stock fell to $0.96 per share Aug. 25, making the value of the Rauchs' shares about $31,870. If the shares had been sold then, the Rauchs would have gained $20,708 in profit.

The stock is now worth less than $0.03 per share, meaning the shares Rauch bought for his children are worth about $830.

Rauch agreed to pay $20,708 to the SEC to account for the potential profit, plus $2,576 in interest earned on the profit before the settlement. He also will pay a penalty of $20,708.

Rauch said Wednesday his children have not sold any of their Advanced Cell Technology stock; that he remains a member of the company's business development board; and that he continues to refer potential investors.

The SEC filed its complaint Wednesday and also announced a settlement had been reached. SEC spokesman Marc Fagel said the timing of the two announcements was "fairly typical," as many defendants decide to settle while a commission investigation is ongoing.

This is the second time this year the three-term mayor has faced investigation into alleged impropriety. A complaint that alleged Rauch had attempted to solicit a bribe was dismissed by the State Ethics Commission in April because the alleged scheme never came to fruition.

Billy Keyserling, who ran against Rauch for mayor in 1999 and 2004, claimed Rauch offered to vote for annexation of the 1,005-acre McLeod Farm, which was being sold through Keyserling's real estate firm and includes 38 acres Keyserling owns with three partners. In exchange for his vote, Rauch wanted Keyserling to praise Rauch's work and serve as treasurer of Rauch's re-election campaign instead of running for mayor himself, Keyserling said.

An Ethics Commission investigation turned up probable cause, but the complaint was dismissed because no exchange took place. The McLeod family withdrew its annexation petition before a City Council vote.

City Councilmen George O'Kelley and Gary Fordham, both attorneys, criticized the mayor in April for getting the ethics complaint dismissed on a "technicality" instead of clearing his name by presenting the facts.

O'Kelley and Fordham again upbraided Rauch on Wednesday and called for his resignation.

"This is just disgusting to me that something like this is happening," Fordham said. "I think it would be very appropriate to ask him to resign his position."

City manager Scott Dadson said the council has no authority to remove Rauch from office.

Gov. Mark Sanford, who is Rauch's brother-in-law, could suspend Rauch or remove him from office if he were indicted on a criminal charge, Sanford spokesman Joel Sawyer said Wednesday. The SEC, however, files only civil suits.

Sawyer said Sanford will not comment on personal matters involving family members.

Mark Plowden, a spokesman for the S.C. Attorney General's Office, said his office would act only if Rauch were accused of violating state law. Ethics Commission officials could not be reached Wednesday.

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