The case stems from Vitro’s hostile bid for Anchor Glass Container Corp., the second largest U.S. bottlemaker, in August 1989. The deal, the first U.S. takeover battle ever launched by a Mexican company, shocked Wall Street and was controversial in Mexico as well. From a business standpoint it made sense, giving Vitro an instant sales network in the United States and a captive market for its own glass making equipment. Vitro’s takeover strategy eventually won the day, transforming the Monterrey-based company into a leader in the global bottle business. But the victory has been tarnished by the SEC’s charge that the five Mexicans bought 150,000 shares of Anchor stock before Vitro’s bid was announced, earning an illegal $1.2 million profit.
The charges are still echoing through Mexico City’s gleaming stock exchange, the Bolsa de Valores. The once somnolent Bolsa has become on of the world’s hottest exchanges as investors fight for shares in companies privatized by the government. But insider trading remains a way of life in a country where the shares of almost every publicly traded company are controlled by families, making prices easy to manipulate. Mexico’s National Securities Commission didn’t even have clear rules against insider trading until 1989, and it brought its first case only this year. Though some of Mexico’s new trading codes appear even stricter than those in the United States, lax enforcement is still a problem. Says Jesus Mario Gonzalez, a securities expert at the Monterrey Technological Institute, “Our financial markets were more like intimate clubs, and insider trading was rampant-but not really considered a crime.”
Before bidding for Anchor, sources say, Vitro had warned its top executives against trading in Anchor’s stock. Apparently the warning did not reach Jorge Guajardo, the company’s director of glass-container exports. According to the SEC, Guajardo tipped off Manuel Villareal, a former Vitro financial officer. Villareal allegedly told another former Vitro colleague, Rodolfo Lagler, and two Mexico City businessmen, Gilberto Salinas and Ernesto Tinajero. Villareal allegedly received $45,000 from Salinas and Tinajero for the tip, and split the payoff with Guajardo. Guajardo paid a $47,000 civil penalty to the SEC in April without admitting or denying guilt. A hearing on charges against the other four is set for next month; meanwhile, their U.S. assets are frozen and their legal bills are mounting. At least one defendant was forced to put his house up for sale to pay U.S. lawyers, sources say. The men’s friends argue that the SEC’s pursuit, which may require the men to disgorge three times their illegal profits as well as paying fines, goes too far. “Manuel did not think he had acted outside the law, and surely not outside the ethical principles of our society,” says a relative of Villareal.
Those ethical principles may play a role at the SEC hearing. Lawyers for the four are expected to assert that Vitro itself is at fault because it did little to keep its planned attack on Anchor secret. Vitro secretaries reportedly talked freely about the plan at Monterrey gatherings, and one Mexico City securities analyst cites “an irregular increase in Vitro trading volume” on the offer. “The Anchor information was practically in the public domain,” argues a lawyer for one defendant.
Vitro has reacted sensitively to any hint of irresponsibility on its part. “There has never been any suggestion that Vitro itself or any of its senior management has violated any U.S. Securities laws,” says a Vitro spokesman. Still, defense lawyers contend that as a result of the supposedly gushing Vitro leaks, the SEC investigation will go wider than just the five already accused. “The SEC wants us to respect it, so it’s going to hang a few of us,” one Mexico City securities analyst predicts. If that’s the purpose, Mexican investors have gotten the message loud and clear. “We were lucky it happened to somebody else,” says Lorenzo Zambrano, chairman of Cemex S.A., a cement maker that recently issued securities in New York. “We’re all learning the system and bending over backward to obey U.S. law.” Mexican securities regulators say they have no intention of completely imitating U.S. insider-trading rules. But if the current trade talks between the United States, Canada and Mexico result in a single North American market, they may not have much choice.
