When I was on the SEC’s enforcement staff, I had a case once where we were pretty sure our prospective defendant had engaged in insider trading. Our conversation with his lawyer went something like this:¹ Us: Did your guy sell those shares on the basis of material, nonpublic information? Him: No way. In fact, he… Continue Reading
Category Archives: Insider Trading
Subscribe to Insider Trading RSS FeedSEC Sues Badin for Insider Trading in Smithfield Foods Acquisition
Posted in Insider Trading, SEC LitigationThe May 29th announcement that China-based Shuanghui International Holdings had agreed to acquire Virginia-based Smithfield Foods came with a lot of news value. First, the $4.7 billion price tag for Smithfield is large by any measure. Second, this deal – the largest-ever acquisition of a U.S. company by a Chinese company – has offered great… Continue Reading
SEC Publishes Report on Reg. FD and Social Media – Joy, Vexation Follow
Posted in Insider TradingYou probably remember a dustup from a few months ago when the SEC threatened to sue Netflix for violations of Regulation FD. Basically, the rule says that when a public company gives material nonpublic information to anyone, the company must also publicly disclose the same information to all investors. Netflix’s CEO, Reed Hastings, had arguably… Continue Reading
Remote Tippee Issues Hang over SEC / Wells Fargo Insider Trading Case
Posted in Insider TradingThe SEC brought a big insider trading case against a number of individuals in the Western District of North Carolina yesterday. The complaint alleges $11 million in illicit profits. The complaint calls it an insider trading “ring,” but it’s more like a tree. At the roots were a 30-year-old investment banker named John Femenia. He… Continue Reading
Several Thoughts about the Largest Insider Trading Case in History
Posted in Insider Trading, Investment Advisers, Parallel Proceedings, SEC LitigationThe SEC and Justice Department filed a massive insider trading case in the Southern District of New York yesterday. The actual defendants include University of Michigan neurology professor Sidney Gilman, hedge fund advisory firm CR Intrinsic Investors LLC, and Matthew Martoma, a portfolio manager at CR Intrinsic between 2006 and 2010. According to the Wall… Continue Reading
Second Circuit Addresses Insider Trading Duty under Misappropriation Theory
Posted in Insider Trading, SEC LitigationA more responsible blogger would have covered this case well before now. But you take your bloggers as you find them, and I do think it important even two months later to address SEC v. Obus, 693 F.3d 276 (2d Cir. 2012). In that case, the U.S. Court of Appeals for the Second Circuit reversed… Continue Reading
Three More Thoughts about Securities Enforcement Forum 2012
Posted in Insider Trading, SEC Litigation, WhistleblowersSeveral more things from the Securities Enforcement Forum 2012 occurred to me after my last post, and I thought I would note them here. Rajat Gupta First, in a discussion of recent insider trading cases, Judge Sporkin supposed that Rajat Gupta might have avoided criminal prosecution if he had settled the SEC’s initial administrative case… Continue Reading
North Carolina Trader Plays His Cards Right with the SEC
Posted in Cooperation, Insider Trading, SEC LitigationThis perhaps goes without saying, but when the SEC’s enforcement staff call to ask about potential securities law violations, they aren’t just gathering facts, as they like to say. And it can be very hard to know what to do in response. Kenneth Wrangell got such a call recently, and it appears that he made… Continue Reading
3½ Thoughts about the Consolidated Audit Trail
Posted in Broker-Dealers, FINRA, Insider Trading, SEC StructureOn July 11th, the SEC adopted Rule 613, a rule that requires national securities exchanges and FINRA “to jointly submit a comprehensive plan detailing how they would develop, implement, and maintain a consolidated audit trail that must collect and accurately identify every order, cancellation, modification, and trade execution for all exchange-listed equities and equity options… Continue Reading
Three Thoughts about Rajat Gupta
Posted in Insider TradingYou have surely heard by now that Rajat Gupta was convicted on four of six counts in his insider trading trial last Friday. Amid a number of recent high-profile flops, Gupta’s conviction is a bright spot for the Justice Department, and in particular for prosecutors in the Southern District of New York and the SEC. … Continue Reading
SDNY Explores Officer-and-Director Bar Factors
Posted in Insider Trading, SEC LitigationIn its enforcement actions, the SEC almost always seeks injunctions that prohibit the defendants from violating specific securities laws. Their value lies in the threat of contempt for violation of the order (a largely illusory threat) and collateral consequences for various aspects of the defendant’s business (can be quite serious). For defendants who are not… Continue Reading
Will Raj Rajaratnam Testify against Rajat Gupta?
Posted in Cooperation, Insider TradingRajat Gupta’s insider trading trial is proceeding apace in the Southern District of New York. While there have certainly been enough entertaining witnesses to keep close observers busy so far, none would be as Earth-shaking as news of Raj Rajaratnam’s testimony. As you know if you’re reading this post, Rajaratnam was convicted in the same… Continue Reading
Khuzami Touts SEC’s Focus on Compliance
Posted in Compliance, Insider Trading, Investment Advisers, Non-scienter-based ViolationsThe SEC’s Enforcement Director, Rob Khuzami, gave an interview to Thomson Reuters last week that you should read. These things are always edited, so it’s hard to know in what order he spoke, but as it is written he gets the interview off to an interesting start. He does not crow about any particularly “big”… Continue Reading
Kinnucan Finally Arrested, But His Case Doesn’t Tell Us Much
Posted in Insider TradingYou may remember a dustup from late 2010 when FBI agents approached John Kinnucan at his house in Portland, Oregon, and tried to convince him to cooperate in the Justice Department’s widening investigation into insider trading. Kinnucan, the principal of his own expert consulting firm, Broadband Research Corporation, was not ready to play along. After… Continue Reading
Ken Heebner and Expert Networks
Posted in Insider TradingI taught a CLE on recent developments in insider trading law last Friday, and got some questions after the session about expert networks. These networks have been much in the news recently because some of them have functioned as systemic insider trading rings, linking up traders with current and former corporate employees who are all… Continue Reading
Senate Passes Bill Banning Its Own Insider Trading
Posted in Insider TradingInsider trading by Members of Congress has recently been moved to the front burner, or at least the stove, for many policymakers. The President called for an explicit ban on such trading in his recent State of the Union address. On Thursday the Senate passed a bill prohibiting Members of Congress from trading securities on… Continue Reading
Would David Einhorn Be Liable for Insider Trading under U.S. Law?
Posted in Hedge Funds, Insider TradingAs you might have read, the U.K. Financial Services Authority last week fined David Einhorn, the founder and president of hedge fund Greenlight Capital, about $11 million for insider trading in the shares of British issuer Punch Taverns Plc. The matter was settled, so the actual facts are somewhat unclear, but you can find the… Continue Reading
SEC Targets Insider Trading Compliance Failures
Posted in Broker-Dealers, Compliance, Insider Trading, Non-scienter-based ViolationsIn light of Cady’s recent IA compliance gala celebration, I thought I would spend a post discussing In re Janney Montgomery Scott LLC, Admin. Proc. File No. 3-14459 (July 11, 2011), a compliance matter involving a broker-dealer. The case was based in Section 15(g) of the Exchange Act, which requires all registered broker-dealers to establish, maintain,… Continue Reading
Delay in Gupta’s Case Probably Based in the Evidence
Posted in Insider TradingWhen Rajat Gupta was finally arrested on insider trading charges in late October, David Zaring at the excellent Conglomerate blog, asked, “What took the SEC so long?” A commenter then added, “Isn’t it what took the DOJ so long?” The commenter makes a good point. After all, Galleon Group chief Raj Rajaratnam had been arrested… Continue Reading
The Formerly Famous Should Probably Stay on the Securities Fraud Sidelines
Posted in Insider TradingWhen deciding which cases to pursue, the SEC considers a number of different factors. One of these, as we know from Rob Khuzami’s public speeches, is deterrent impact. That is, which cases will most effectively signal to other potential bad actors that the SEC is watching and will enforce the securities laws in a way… Continue Reading
Want to Avoid an Injunction Sought by the SEC?
Posted in Insider Trading, SEC LitigationWhen the SEC brings a case against a defendant in federal court, it almost always seeks a curious remedy – an injunction not to violate the statute it is accusing the defendant of violating. Now, the law already requires what the proposed injunction would say. If Section 10(b) of the Exchange Act says you’re not… Continue Reading
Consolidated Audit Trail Will Revolutionize Insider Trading Enforcement
Posted in Insider TradingBluesheeting, for those who haven’t experienced it, is the archaic and cumbersome process by which SEC and FINRA staff collect equity stock trading information for particular issuers. I’m not sure what word best describes the process. It’s not exhausting, really, but it’s not a thrill ride, either. As far as law enforcement goes, it’s much… Continue Reading