Insider Trading, But Not In the Shares of the Firm Named in the Tip

Insider trading is a long-standing staple of SEC enforcement. The Commission has traditionally been quite aggressive in this area. The courts have typically been accommodating, adopting theories crafted by the agency and writing them into law based on Exchange Act Section 10(b).

Perhaps the most interesting point about this long-standing trend is that Section 10(b) does not contain the phrase “insider trading.” Rather, the Section talks in terms of schemes and devices. The Commission’s latest case in this area does mention insider trading insider trading but does differ significantly from the standard Commission involve trading action. SEC v. Panuwat, Civil Action No. 4:21-cv-06322 (N.D. Cal. Verdict April 5, 2024).

Defendant is Matthew Panuwat, formerly a business development executive at Medivation Inc., a mid-sized oncology-focused biopharmaceutical firm. On August 18, 2016, Mr. Panuwat learned from the CEO of his employer that Large Parma firm would acquire the company that employed him.

Shortly after learning about the planned takeover, Mr. Panuwat purchased short-term stock options in the shares of Incyte Corporation that were out-of-the-money. He did not purchase shares of Medivation, his employer and the subject of the take-over tip he had received. Incyte was, another a mid-sized oncology biopharmaceutical firm like his employer.

Two days after the option purchase – August 22, 2016 – Medivation announced it would be acquired by Large Parma firm. The share price of Medivation’s stock increased 20% over the course of the day. The share price of Incyte, whose options Mr. Panuwat had purchased, increased about 8% in value. The options Mr. Panuwat had purchased increased by about 20% in value, giving him trading profits of $107,066.

On April 5, 2024, a jury returned a verdict in favor of the Commission, concluding that Mr. Panuwat was liable for violating Exchange Act Section 10(b) by engaging in insider trading. Remedies will be determined at a later date by the Court. This appears to be the first case initiated by the Commission charging insider trading in which the securities traded were not those which were the subject of the tip.