Securities And Exchange Commission v. One or More Unknown Purchasers of Call Options for the Common Stock of TXU Corp.

Filing 109

MOTION by Plaintiff Securities And Exchange Commission for judgment to Identify Unknown Purchaser # 2 as Marcos Montero and Enter Agreed Final Judgment Against Defendant Montero (Attachments: # 1 Exhibit A Montero Letter June 19, 2007, # 2 Exhibit B Montero Consent, # 3 Text of Proposed Order as to Montero)(Brandt, Jennifer)

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Via DHL United States District Cour Northern District of Ilinois Eastern Division Chicago Attn: Judge George W. Lindberg United States Courthouse 219 South Dearborn Street Chicago Ilinois 60604 USA

Via DHL Securities and Exchange Commission Attn: Ms. Jennifer Brandt Fort Worth Distrct Office
80 I Cherry Street 19th Floor

Fort Worth
Texas 76102-6882

USA

Feusisberg, 19 June 2007

Transactions in Call Options for the Common Stock of TXU Corp.

Civil Action No. 07C-1208
Dear Judge Lindberg, dear Ms. Brandt

Referring to the above referenced civil action No. 07C-1208 and the preliminary injunc-

tion order of the United States District Cour Northern District of Ilinois of 28 March
2007, I declare the following:

I. PRELIMINARY REMAR
1. My name is Marcos Montero and I have traded call options for the common stock of
TXU Corp. through Credit Suisse in February/March 2007.
2. Without acknowledging the jurisdiction of

Northern District of

the US Cours in my case, I declare that I have received the preliminary injunction order of the United States District Cour Ilinois of28 March 2007.

3. Apparently, I am referred to as the "unknown defendant number two" in the civil

action No. 07C-1208.
4. I am willing to cooperate, i.e. to comply with the requests in the preliminary injunc-

tion order and all future reasonable demands ofthe SEC or the Court.
5. The fiing of this statement and the disclosure of the information required by the pre-

liminary injunction order is no confession of any kind of insider trading or any

other fraudulent activities and no acceptance of the jurisdiction of the US
Courts.
EXHIBIT A

,,\ 2/12
6. Referring to Ms. Brandt's telephone conversation with Michael L. Siegel and Carl E.

Poli on 6 June 2007 and the confirmation letter of 7 June 2007, the SEC was willing to grant additional i 0 business days to produce all information required by the preliminary injunction order. This time limit is met with today's fiing.
7. Please take note that I am no longer represented by Michael L. Siegel and Carl E.

Polio

II. IDENTITY OF "DEFENDANT NUMBER TWO"
i. All transactions in call options for the common stock of TXU Corp. were made

online by Marcos Montero via the account No. 167386-42-1 with Credit Suisse. This

account is a joint account hold by Marcos Montero (son) and Antonio Montero
(father). I am authorized to file this statement on behalf of my father Antonio Montero.
2. In accordance with Sec II. (A) of the preliminary injunction order of the United

States District Court Northern District of Ilinois of 28 March 2007 I herewith
disclose the identity of

the so-called "defendant number two ":

Marcos Montero
Private address:

Moosgaessli 1 / CH-8835 Feusisberg

Business address:

BNP P ARAS (SUISSE) SA / Talstrasse 41 / CH-8022 Zurich
Spain
[phone] (home)

Citizen of:

Phone:

[phone] (office) [phone] (cell) [phone] [phone]
Fax:

[phone] (offce)

Antonio Montero

Private address (1): Avenida Miramar 7/8 lc / ES-29640
Fuengirola Malaga

Private address (2): Gemsberg 4 / CH-4051 Basel

Business address: -- (retired)

Citizen of: Spain
Phone: + 34 605 15 20 23
[phone]

"

3/12

III. ACCOUNTS HOLD BY MARCOS AND ANTONIO MONTERO
1. In accordance with Sec II. (B) of the preliminary injunction order of the United

States District Court Northern District of Illnois of 28 March 2007 I herewith
disclose that the following accounts are maintained inter alia in my name:

Bank Institute
Credit Suisse

Account-No.
167386-42-1

Account-Holder
Antonio Montero
Marcos Montero
Exhibit 1

Credit Suisse

167386-42-4

Antonio Montero
Marcos Montero
Exhibit 2

Credit Suisse

167386-42-5

Antonio Montero
Marcos Montero
Exhibit 3

Credit Suisse

167386-41

Antonio Montero
Marcos Montero
Exhibit 4

Credit Suisse

167386-42

Antonio Montero Marcos Montero
Exhibit 5

Credit Suisse

586028-62

Marcos Montero
Exhibit 6

Credit Suisse

586028-62-2

Marcos Montero
Exhibit 7

Credit Suisse

586028-60

Marcos Montero
Exhibit 8

4/12

Credit Suisse

586028-60-1

Marcos Montero
Exhibit 9

Credit Suisse

586028-61

Marcos Montero
Exhibit 10

Credit Suisse

586028-61-1

Marcos Montero
Exhibit 11

Credit Suisse

586028-61-4

Marcos Montero
Exhibit 12

Credit Suisse

586028-61-5

Marcos Montero
Exhibit 13

Credit Suisse

963942-81-945

Marcos Montero
Exhibit 14

UBS AG

230-268917.40Y

Marcos Montero
Exhibit 15

UBS AG

230-268917-01

Marcos Montero
Exhibit 16

iv. INVESTMENT STRATEGY OF MARCOS MONTERO
1. I am a sophisticated investor with access to countless investment reports of different

investment banks and I have used the entire spectrum of investment possibilities with a considerable sum of money for many years.

2. I embarked on the same investment strategy for many years with success. This strategy can be explained as follows:

STEP 1 -- General research in all public available sources on a daily basis.

STEP 2 -- Preliminary decisions to do additional researches in specific industries or companies.

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5/12

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STEP 3 -- Valuation / estimation of the stock of one or several target compameso

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STEP 4 -- Decision whether the stock in a specific company is undervalued.

STEP 5 -- Investment in the securties of such a specific company prior to the
publication of

the company results.

3. In order to make my general investment strategy clear, I would like to refer to the
following investments that were all made prior to the publication of the company results.
a. I have invested CHF 196'814.75 in securities of

a Holding AG between 7 and 22 August 2006. On 24 August 2006 Valora Holding AG published the semi-anual results.
Valor transactions dated 5 April 2007 Valora publication of 24 August 2006

EO: List of

Exhibit 17
Exhibit 18

b. I have invested CHF 102'716.00 in options of Lindt&Sprüngli on 15 February

2007. Lindt&Sprügli has published the company results on 20 March 2007.
EO: List of transactions dated 5 April 2007 Lindt & Sprüngli publication of 20 March 2007

Exhibit 17
Exhibit 19

c. I have invested CHF 35'171.00 in options for the common stock of Ho1cim on

26 September 2006. Holcim has published the company results on 8 November 2006.
BO: List of transactions dated 5 April

2007

Exhibit 17
Exhibit 20

Ho1cim publication of 8 November 2006

4. The enclosed list of my investments via the account number 167386-41 with Credit

Suisse in the last 12 months and the list with the last 100 entries and the specifically mentioned transactions in Valora, Lindt&Sprüngli and Holcim is evidence that:
a. I am doing investments with a considerable sum of

money on a regular basis.

b. I had several investments in US companies in the past such as

Memory Phannaceutical
Pacific Ethanol
Valeant Pharmaceuticals Internationals
c. I usually invest in securities of companies prior to the publication of the com-

pany results.

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6/12

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d.

The TXU Corp. investment was in line with my long lasting general investment strategy.
EO: List of transactions dated 5 April

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2007

Exhibit 17
Exhibit 21

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List of last 100 entries

v. PUBLIC AVAILABLE INFORMATION ON TXU CORP.
1. Between December 2006 and February 2007 a multiplicity of public available infor-

mation rated the TXU stock as a good investment. Simply for your information and as a shortlist, the following public sources (in chronological order) contained information on the Energy sector in general and the TXU Corp. stock in specific:

a. The Morgan Stanley Research Report of 12 December 2006 explained that there is a mismatch between the actual and the expected price in US Energy
stock.

"We see attractive valuations, indiferent to pessimistic sentiment, and high cash balances as important reasons to consider the group. Also, unlike the consensus, we think that the group

can enjoy multiple expansion at this point in the cycle. f..,) 100% of Energy stocks - i. e. every single one - went up in
2004 and 2005, while better than three out of four climbed positively in 2006. roo.) our view is that one of the big surprises for 2007 could be that Energy stocks do well when

there is no longer a mismatch between the actual and expected
commodity price. "

EO: Morgan Stanley Research Report of 12 December 2006 Exhibit 22
b. Morgan Stanley mentioned TXU as one of the favourites in the energy sector
and that M&A could be an issue.

"Our favourite is Arch Coal, which has been slammed after re-

porting disappointing earnings, and TXU, which sold off
sharply on the heels of reduced guidance. roo.) We also see

M&A as an important catalyst. Bottom line, there are just
fewer and fewer areas in the world that can actually deliver true production growth, and increasingly, the "good" producers are located in areas of "bad" geo-political tensions. Using our Current Operations Value analysis, investors appear to be assigning negative future growth to the Energy group versus a

historical average of 19.2%. This pessimistic view compares with 17% of the market's current value being attached to future growth."

EO: Morgan Stanley Research Report of 12 December 2006 Exhibit 22

7/12

c. The Morgan Stanley Research Report of 19 December 2006 referred to the
TXU stock as an inexpensive stock.

"Conclusion: TXU is an inexpensive stock, in our opinion. We believe TXU's current valuation is over factoring the various

risks facing the company. That being said, there is little doubt in our mind that TXU has an unusually challenging calendar over the next two months and the stock is likely to remain under pressure during that time. We believe many of the risky
events wil transpire without materially changing the company's long-term positive outlook. As a result, we believe

TXU's stock is still poised to outperform the sector in 2007 as

key sources of uncertainty firm up throughout the 1 Q2007. (...)

Additionally, we do not believe that the company's difcult
lead to material changes to the company's earnings power or value. (...) Disclosure by the company that the new plant development costs are in the range of USD 1100 per
calendar will

kW,' any firm estimate that reduces uncertainty would help the

stock. (...) Additionaly, we believe that many of the near-term legislative and regulatory events are unlikely to result in meaningful changes to TXU's earning powerI..) Price Target is

USD 65: (...) Risks to our price target include delays and cost
overruns in TXU DevCo 's coal development effort, legislation

imposing retail price controls in Texas, retail margins lower
than our forecast, generation overbuild and fallng gas prices

in Texas resulting in lower margins for new and existing coal plants. "

EO: Morgan Stanley Research Report of 19 December 2006 Exhibit 23
d. Morgan Stanley recommended buying TXU Corp. stock in its Research Report
of 9 Januar 2007.

"Overall, we feel that Energy is very close to staging a strong

oversold rally, which could halt WTI Crude's decline between current levels and USD 52.30. (...) With sentiment growing
very bearish in Energy and most Energy-related indices showing only short-term deterioration, but with long-term trends

remaining intact, this sector could be one to dollar-cost average into as we near the seasonally strong February-April period. roo.) We would buy into Energy here and add to the sec-

tor on further weakness. Finally, we outline three of our favorite longs and shorts from each of the 10 S&P GICS Level 1

sectors. We selected these stocks purely based on technical
criteria. Utilities: PG&E, TXU Corp., Equitable Resources. "

EO: Morgan Stanley Research Report of9 January 2007

Exhibit 24

8/12

e. The Morgan Stanley Research Report of 18 January 2007 qualified the TXU stock as mispriced:

"Revisiting our "Mispriced" Growth Theme: Our Mispriced Growth basket of stocks appears to be priced for slow growth and lots of adversity. In particular, Sunoco, Archer-Daniels Midland, TXU, Pfizer, ACE, General Motors, and Wellpoint all look to be discounting much slower growth than either his
team or our team think is likely. "

EO: Morgan Stanley Research Report of 18 January 2007

Exhibit 25

f. The Morgan Stanley Research Report of 8 February 2007 explained that the
TXU Corp. stock would at a price ofUSD 65 still be inexpensive.
"We continue to believe that the legislators'main goal is to

lower retail electricity prices. In our view, many of the more punitive proposals introduced today should fade away if and
when TXU and the legislators reach an agreement on that is-

sue. r...j Impact of lowering rates: (...) The stock would still

be inexpensive relative to the group on aPE basis even under the EPS cut scenario outlined below."
EO: Morgan Stanley Research Report of 8 February 2007

g. The Morgan Stanley Research Report of 19 February 2007 rated the TXU stock as inexpensive.

..

Exhibit 26

"The stock would stil be inexpensive relative to the group on
a PE basis even under the EPS cut scenario outlined below. Under our high reduction case of USD16/Mwh, the 2008 PE

multiple would just rise to 11.3x from 10.4x, stil inexpensive relative to a diversifed group trading at 14.2x consensus. "

EO: Morgan Stanley Research Report of 19 February 2007 Exhibit 27
h. The Morgan Stanley Reseach Report of 20 February 2007 rated the TXU stock
as one of the stocks with the highest potentiaL.

"Taking it to the sector and stock level: See inside for details,

but our Long-only screen contains a number of companies
from Energy, Materials and Utilities. Names to consider include COP, TXU and AA. r...j The punch line is that, on the Long side, our quant model stil suggests buying high quality,

inexpensive stocks with growth characteristics. Our Top 50 Long ideas from the S&P 500 appear in Exhibit 7. Names that we think have the greatest potential include COP, TXU, and
AA."

9/12

EO: Morgan Stanley Research Report of20 February 2007 Exhibit 28
2. Between December 2006 and February 2007 a multiplicity of public available infor-

mation rated the TXU Corp. stock as a good investment. Morgan Stanley qualified the TXU Corp. stock with the following expressions:
"the greatest potential"
"high quality, inexpensive stocks"
"price target USD 65"

"our Top 50"

3. The TXU stock quotation was always very volatile prior and after the publication of the company results (e.g. the stock price raised approximately 20% after the publication of

the quarerly results on 2 May 2006).
Exhibit 29

EO: Development of stock price 25.04.05 - 25.04.07

4. Investing in TXU Corp. securities in February 2007 was for any investor a compre-

hensible decision in consideration of the public available information and given that TXU Corp. announced that the company results would be published on 27 February 2007.

VI. TRASACTIONS IN TXU CORP.
1. My investment in call options for the common stock of TXU Corp. was structured as follows (I have included the public announcements of the M&A on the time line for
better comprehension.):
DATE
Feb 21

TRASACTION
purchase of 1 '060 call options in TXU

INSTMENT I

RETUR

- USD 27'706.62

(separated in 3 portions)*
Feb 23

sale of 500 call-options

+ USD 34'075.23

03.58 pm
Feb 23

Bloomberg announced: "volatility is rising," larger near term event risk"

06.35 pm

10/12

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Feb 23

Bloomberg announced: "TXU: A purchase by KK is planned. "

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11.36 pm
Feb 26 Feb 27
March 7 March 9

TXU announced the details of the merger
TXU published the company results
sale of 200 caB-options
sale of 360 caB-options

+ USD 91'203.71

+ USD 146'484.06

TOTAL RETURN

+ USD 244'056.38

* The instrction to buy the last portion of 60 options was given on 21 February

2007 but Credit Suisse booked it on 22 February 2007 by a mistake.

EO: Purchases of call options Sales of call options Bloomberg-Anouncement of23 February 2007,06.35 pm Bloomberg-Anouncement of23 February 2007, 11.36 pm

Exhibit 30
Exhibit 31

Exhibit 32 Exhibit 33

2. The common stock ofTXU Corp. opened at a rate ofUSD 56.45 on February 21 and closed at a rate of USD 57.46 on February 22. Given that on February 23 the com-

mon stock of TXU Corp. opened at a lower rate of only USD 57.41, I was worred that I could lose the invested money. Hence, I decided to sell 500 call options in order to cover my investment. I sold the 500 call options for a price ofUSD 0.70 which was with hindsight a very umeasonable decision given that the price of the call options climbed to over USD 2 that day.
EO: Overview daily quotations TXU Corp.
Exhibit 34

3. The sale of 500 call options a couple of hours prior to the anouncement of a big take-over is the behaviour of an uninformed normal investor and not the behaviour of an insider.

VII. JURISDICTION
1. Although, I traded in call options for the common stock of a US company, I herewith

deny the jurisdiction of US Courts because I did not have suffcient "minimum contact" with a State in the Unites States. The exercise of jurisdiction in this case would violate the Due Process Clause of the United States Constitution.
2. Hence, I herewith fie a motion to dismiss claiming that the Court lacked in per-

sonam jurisdiction over my father Antonio Montero and me.

3. My father, Antonio Montero, did not make any transactions and was nothing more
than a joined account holder. Based on Securities and Exchange Commission v.

11/12

Alexander, 2003 U.S. Dist. LEXIS 8504 (S.D.N.Y. 2003) the motion to dismiss with respect to my father Antonio Montero has to be granted because of a lack of minimum contact with the United States.
4. I am a Spanish citizen living in Switzerland. The transactions in call options of TXU

Corp. were made via a Swiss bank institute. Hence, no par of the transaction oc-

cured within the Northern District of Ilinois and the motion to dismiss has to be
granted because of a lack of minimum contact with the United States

VIII.

FINAL REMAR
ing this statement and the Exhibits 1 - 34 I tried to comply with the preliminary injunction order of28 March 2007 to the best of my knowledge.

1 I already mentioned above that I am no longer represented by a US attorney. By fil-

2 Given that I have no knowledge of the US Legal system and/or the English legal terminology any failures to comply with the preliminary injunction order were unintentionally. 3 Given that I am willng to comply with the request in the preliminary injunction or-

der and all futue reasonable demands of the SEe or the Court I kindly ask you to
abstain from disclosing my identity for the time being. Should the SEC decide to

disclose my identity, I wil without much doubt be fired by my employer and I will
have no chance to find a new job in the baning industry in Switzerland. My career

would be ruined in this case. Based on the generally accepted principle of the presumption of innocence, I would be very grateful for your understanding in this respect for the time being.
4 I reserve my right to make additional statements for the further course of the pro-

ceedings.
5 Please do not hesitate to contact me via the Swiss Federal Banking Commission

should you have fuher questions.
Yours sincerely,

Marcos Montero

Exhibits mentioned

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cc: - Swiss Federal Banking Commission, Mrs. Geneviève Berclaz

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12/12

EXHIBITS
Exhibit 1 - 16
Exhibit 17
Exhibit 18

Ban Statements
List of transactions dated 5 April 2007 Valora publication of 24 August 2006 Lindt & Sprügli publication of 20 March 2007 Holcim publication of 8 November 2006 List of last 100 entries Morgan Stanley Research Report of 12 December 2006 Morgan Stanley Research Report of 19 December 2006 Morgan Stanley Research Report of9 January 2007 Morgan Stanley Research Report of 18 January 2007 Morgan Stanley Research Report of 8 February 2007
Morgan Stanley Research Report of 19 Februar 2007

Exhibit 19

Exhibit 20
Exhibit 21

Exhibit 22 Exhibit 23 Exhibit 24 Exhibit 25 Exhibit 26 Exhibit 27 Exhibit 28 Exhibit 29 Exhibit 30
Exhibit 31

Morgan Stanley Research Report of20 February 2007
Development of stock price 25.04.05 - 25.04.07

Purchases of call options Sales of call options

Exhibit 32
Exhibit 33

Bloomberg-Anouncement of23 February 2007,06.35 pm Bloomberg-Anouncement of23 Februar 2007, 11.36 pm
Overview daily quotations TXU Corp.

Exhibit 34

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