Insider trading has long been a key focus of the Commission as well as the DOJ. Over the years the courts have developed, refined, defined and re-defined the elements. Despite the plethora of often complex judicial opinions the basic offense has remained the same: a corporate insider with confidential, material, non-public information that belongs to the firm converts it to his or her personal use either trading for their own account or furnishing the information to a relative or friend who trades and obtains the profits. Two new cases filed by the Commission and one jury verdict in a criminal case illustrate the point.
SEC v. Shen, Civil Action No. 5:18-cv-04104 (N.D. Cal. Filed July 10, 2018) names as a defendant Gene Shen, the former Principal Scientist at Pacific Biosciences of California, Inc. The firm developed and manufactured genetic sequencing technology. In 2013 Pacific Biosciences entered into an agreement regarding the development of a new genetic sequencing platform. Specifically, F. Hoffman La Roche agreed to make significant payments to the company when it achieved each of three milestones toward the development of that platform. For each of the first two milestones Roche would pay the firm $10 million. At the launch Pacific Biosciences would receive $20 million.
During the development of the platform Mr. Shen received periodic updates on progress toward the milestones. In advance of each milestone Defendant Shen traded profitably during a company blackout period. Overall he had trading profits in excess of $40,000. A relative he tipped had gains of about $1,360. The complaint alleges violations of Exchange Act section 10(b). Mr. Shen resolved the matter, consenting to the entry of a permanent injunction based on the section cited in the complaint. He also agreed to pay disgorgement of $40,622, prejudgment interest of $4,228 and a penalty of $88,192. See Lit. Rel. No. 24194 (July 10, 2018).
SEC v. Carr, Civil Action No. 3:18-cv-01135 (D. Conn. Filed July 10, 2018) names as defendants Robert Carr, the founder of Heartland Payment Systems, Inc. and its CEO, and Katherine Hanratty, the co-owner of a Connecticut based staffing agency. The action centers around the acquisition of Heartland by Global Payments, Inc., announced on December 15, 2015.
Mr. Carr was deeply involved in the negotiations which resulted in the acquisition of his company by Global from October through the announcement date in December 2015. During that period he had a romantic relationship with Ms. Hanratty. Over the period she frequently expressed concern regarding her financial security. Mr. Carr, as the deal negotiations progressed, periodically discussed the progress with her.
On November 15, 2016 Mr. Carr gave Ms. Hanratty a check for $1 million which was marked “loan.” He told her to invest $900,000 in the shares of Heartland. Ms. Hanratty purchased the shares. Following the deal announcement she had profits of over $250,000. The complaint alleges violations of Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 24191 (July 10, 2018).
U.S. v. Chan, No. 1:16-cr-10268 (D. Mass. Jury Verdict July 10, 2018) named as defendants Schultz Chan, the Director of Biostatistics, a Cambridge based biopharmaceutical firm, and Songjiang Wang, the Director of Statistical Programming at another biopharmaceutical firm. The two men were friends. From August 2013 to September 2015 the two friends each furnished the other information regarding a clinical drug trial or study at their respective firms. Each man then traded in the shares of the other’s employer. At one point Mr. Wang loaned his friend cash which he used to trade profitably. The funds were repaid. A jury convicted each man of conspiracy and securities fraud. The date for sentencing has not been set. See also SEC v. Chan, Civil Action No. 1:16-cv-11106 (D. Mass.).