A Tale Of Two Insider Trading Cases
The SEC has long focused on insider trading — it is an enforcement priority. As last week drew to a close, the Commission filed two new insider trading cases. The first it a good example of a classic insider trading case. The second is also an insider trading case – perhaps, it has trading and may also have actual material nonpublic information or inside information, but perhaps not.
SEC v. Watson, Civil Action No. 1:21-cv-05923 (S.D.N.Y. Filed July 9, 2021) is an insider trading case that names as defendants Eric Watson, Oliver-Barret Lindsay and Gannon Giguiere. Mr. Watson was the controlling shareholder and a corporate insider of Long Island Iced Tea Corporation, now known as Long Blockchain Corporation. He is also a securities law recidivist, having settled insider trading charges with the Commission in 2001 and pleaded guilty to a conspiracy charge in a manipulation case in 2019. Defendant Lindsay is a Canadian citizen who is an exempt broker registered in the Cayman Islands. Defendant Gannon Giguiere is a friend and associate of Mr. Watson, having engaged in market manipulation activities with him in the past. Both men were charged by the Commission in 2016 with market manipulation.
In late 2017 Defendant Watson told Mr. Lindsay that Long Island Iced Tea was planning to change its name and line of business. The announcement would be issued shortly.
Subsequently, on December 20, 2017 Mr. Lindsay told his friend, Defendant Giguliere, that Long Island Iced Tea planned to change its name to its current form. In connection with the renaming, the company planned to remake itself and its line of business. Within hours of the conversation Mr. Giguiere purchased 35,000 shares of Long Island Iced Tea stock.
The next day the company published an announcement stating the going forward the firm would engage in a new line of business. Specifically, the announcement stated in part that Long Island Iced Tea was “shifting its primary corporate focus toward the exploration of and investment in opportunities that leverage the benefits of blockchain technology . . .” The firm also planned to change its name to Long Blockchain Corporation, according to the December 21, 2017 announcement.
Following the announcement, the firm’s share price increased by 388% compared to the prior day’s close on large volume. Two hours after the announcement Mr. Giguiere sold all of his Long Island Ice Tea shares, reaping $162,500 in illicit profits. The complaint alleges violations of Exchange Act Section 10(b). The case is pending. The Commission also revoked the registration of the company under Exchange Act Section 12j.
SEC v. Trovias, Civil Action No. 1:21-cv-05925 (S.D.N.Y. Filed July 9, 2021) is also an insider trading case. Defendant Apostolos Trovias is a citizen of Greece. His last known residence is in that country. Since 2016 he has maintained vendor accounts on several Dark Web marketplaces where he is known as The Bull.
Beginning in 2016, and continuing until 2021, Mr. Trovias offered to, and did sell, what he claimed was inside information on the dark web. In part, The Bull claimed his tips came from order-book data from a securities trading firm. The statement was either false and misleading or, if true, a violation of his obligations in handling inside information. The market book tips were marketed through weekly and monthly subscriptions and as one-off assets. Mr. Trovias had over 100 subscriptions.
Defendant also sold pre-release earnings reports of publicly traded companies. The information was inside information. His customers included undercover Internal Revenue Service and Federal Bureau of Investigation special agents. The complaint alleges violations of Exchange Act Section 10(b). The case is pending. The U.S. Attorney’s Office for the Southern District of New York filed a parallel criminal action.