The SEC charged a hedge fund manager and his firm with insider trading based on material nonpublic information that the manager had learned in confidence from a corporate executive.

The SEC complaint alleges that the hedge fund manager generated substantial illicit profits by purchasing securities in a pipeline company in advance of the sale of its natural gas processing facility. The SEC claims that the hedge fund manager used his status as one of the company's largest shareholders to gain access to a corporate executive and obtain confidential details about the upcoming asset sale. The manager and his firm are accused of accumulating the company's securities despite explicitly agreeing not to use the material nonpublic information for trading purposes. When the company publicly announced the asset sale, its stock price jumped more than 31%.

The SEC complaint alleged that when the firm received a subpoena nearly a year-and-a-half later, the hedge fund manager contacted a company executive "and tried to fabricate a story to tell if questioned about this trading activity."

SEC Enforcement Director Andrew J. Ceresney asserted that the hedge fund manager:

[W]ho as a large . . . shareholder obtained access to confidential corporate information, abused that access by trading on this information. By doing so, he allegedly undermined the public confidence in the securities markets and took advantage of other investors who did not have this information.

The SEC's complaint also accuses the hedge fund manager of repeatedly failing to report information in a timely manner about holdings and transactions in securities of publicly-traded companies that he beneficially owned.

Filed in the Federal District Court of Philadelphia, the SEC complaint seeks to obtain disgorgement, prejudgment interest, civil penalties, and permanent injunctions against the hedge fund manager and his firm, as well as an "offer-and-director" bar against the manager.

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