The SEC charged the head of business development (the "executive") at a biopharmaceutical company with insider trading for using confidential information to trade in securities ahead of the company's announcement of an acquisition.
In a Complaint filed in the U.S. District Court for the Northern District of California, the SEC alleged that the executive received confidential confirmation of an "imminent acquisition" by a biopharmaceutical giant from the company's CEO. The SEC alleged that, within minutes of receiving the information, the executive used his work computer to purchase out-of-the-money, short-term stock options in a peer company. As noted, the company's insider trading policy prohibited the executive from using its confidential information to trade in other public companies. The SEC alleged that the executive anticipated that the peer company's stock price would likely increase after the acquisition announcement because the peer company would become "a more attractive target for acquisition" in the future. The SEC stated that the executive did not inform anyone at his company of the trading in the peer company's stock options, which generated illicit profits of $107,066 for the executive.
The SEC alleged that the executive violated Section 10(b) ("Regulation of the Use of manipulative and deceptive devices") of the Exchange Act and SEA Rule 10b-5 ("Employment of manipulative and deceptive devices").
The SEC is seeking (i) a permanent injunction, (ii) a civil money penalty and (iii) an officer and director bar.
Commentary
This case is interesting in that the executive didn't trade in the securities of his employer or the company acquiring his employer. Instead, the SEC alleges that he illegally traded in the securities of a peer company of which he did not actually possess material nonpublic information. While the SEC alleges that the company's insider trading policy "expressly forbade" him from trading in the securities of any public company based on confidential information obtained from his employer, the questions of whether this use of the information violates a duty sufficient to give rise to insider trading liability and whether the confidential information was material to the securities of the peer company will likely be hotly contested issues in the ongoing litigation.
Primary Sources
- SEC Press Release: SEC Charges Biopharmaceutical Company Employee with Insider Trading
- SEC Complaint: Matthew Panuwat
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