In its campaign against insider trading, the SEC has been very aggressive. Yesterday, the Commission continued this trend, filing an action against two French citizens residing in Belgium, Nicolas Condroyer and Giles Roger. SEC v. Condroyer, Case No. 1:09-cv-3600 (N.D. Ga. Filed Dec. 22, 2009). The complaint, which is litigation, is based on little more than the trading.

The case centers on the December 21, 2009 announcement by Chattem, Inc. that it agreed to beacquired by Sanofi-Aventis. Chattem is a manufacturer of various health care products based in Chattanooga, Tennessee. Sanofi-Aventis is a French corporation based in Paris. It is one of the world’s largest health care products companies. The take over price was $93.50 per share, a 32.6% premium to market.

Mr. Condroyer purchased approximately 1,970 Chattem call options for $42,000 between December 7 and 18, 2009. All of the options were out of the money when they were purchased through an account at optionsXpress, Inc., an on-line brokerage firm based in Chicago. The account had been opened on November 26, 2009.

Mr. Rogers purchased about 940 Chattem call options at a cost of about $38,000 on December 17, 2009. All of the options were out of the money. The purchases were made through an account at optionsXpress, Inc., opened on December 8, 2009.

Both defendants sold their positions the day after the take over announcement. Mr. Condroyer had a profit of $2.8 million while Mr. Rogers realized about $1.4 million. The Commission obtained a temporary freeze order over each account.

The complaint alleges that each defendant traded on inside information. The complaint however does not allege:

• The source of the inside information;

• That either defendant knew the other; or

• That either defendant knew anyone at either company

Indeed, the complaint makes it clear that the Commission is not quite sure when the acquisition negotiations began. In this regard it states that “on information and belief” the negotiations began “by November 2009,” which might be prior to the time Mr. Condroyer opened his account. No factual basis is stated to support the alleged “information and belief.”

The Commission has taken aggressive positions in under similar circumstances in the past when confronted with possible insider trading. In some instances the agency has been able to sustain its claims. In others it has not. Here, it is clear that the SEC will need to conduct extensive discovery to prevail.