July 10, 2023
Who may be interested: Boards of Directors, Investment Advisers, compliance staff.
Quick Take: The SEC recently filed complaints charging thirteen defendants with insider trading in four unrelated fraudulent trading schemes. The defendants include corporate executives and insiders, a police chief and a special purpose acquisition company (SPAC) board member. The cases reveal that insider trading in advance of significant announcements or transactions remains an SEC enforcement priority.
According to the SEC, the defendants violated Section 10(b) of the Exchange Act by misusing material nonpublic information to trade in securities in four separate fraudulent schemes. The complaints allege that the various defendants generated more than $40 million in illicit profits, collectively, through these insider trading schemes.
In one of the complaints, the SEC alleges that a SPAC board member shared material nonpublic information regarding the status of the SPAC’s merger plans with a target company with the owner of the venture capital firm at which the SPAC Board member was employed. The venture capital firm’s owner also shared the merger information with his brother. Each of the individuals purchased SPAC shares on the basis of the information, which violated the confidentiality agreements all three had previously signed with the SPAC. The complaint alleges that the trading by the three defendants resulted in over $20 million in illicit profits.
In a second complaint, the SEC alleges that a senior researcher and his friends used material non-public information about vaccine trials to trade in pharmaceutical stock ahead of an announcement of positive results. In the third complaint, the SEC alleges that a company insider started a tipping chain and traded ahead of a merger announcement. Finally, in the fourth complaint, the defendant allegedly traded on information he misappropriated from the laptop of his “romantic partner”, who was an administrative assistant at an investment bank, when they were both working from home due to Covid-19.
The complaints also charge some defendants with violating the reporting obligations under Section 16 of the Exchange Act and the tender offer provisions of Section 14 of the Exchange Act.
The SEC complaints seek permanent injunctions, disgorgement, and civil penalties. The SEC is also seeking officer and director bars for certain of the defendants. Separately, ten of the defendants also face criminal charges for insider trading in parallel actions brought by the U.S. Attorney’s Office for the Southern District of New York.
The SEC’s first complaint can be found here.
The SEC’s second complaint can be found here.
The SEC’s third complaint can be found here.
The SEC’s fourth complaint can be found here.
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The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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