Repeated, Small Insider Trades Draws SEC Sanctions

Repeated insider trading, no matter how small the amounts, is likely to be found by the SEC’s big data approach to surveillance. A former vice president of a retail chain learned this lesson the hard way. SEC v. Hammon, Civil Action No. 1:16-cv-11148 (D. Mass. Filed June 20, 2016).

James Hannon was the Northeast Regional Vice President in 2012 – 2013 of retail chain T.J. Maxx, a division of TJX Companies, Inc. TJX also owned and operated Marshalls Department Stores and HomeGoods. The firm had similar discount stores in Canada and Europe. In his position as Northeast Regional Vice President for T.J. Maxx, Mr. Hannon was responsible for overseeing 122 stores.

Mr. Hannon received daily emails from the finance division of TJX that contained consolidated daily comparable store sales. The data included the current year’s sales and those of the prior year. He also received monthly emails showing nationwide results on a month, quarter and year-to-date basis. At meetings about HomeGoods stores he received information about those stores as well as superstores in the region, combinations of either T.J. Maxx or Marshalls and HomeGoods stores. Overall Mr. Hannon had financial information about 76% of TJX’s worldwide stores.

Beginning in mid-2012, and continuing through early 2013, Mr. Hannon purchased shares of his firm while in possession of inside information on five occasions:

July 3, 2012: Purchase of 5,600 shares just prior to the July 5, 2012 earnings announcement discussing a 7% increase in consolidated comparable store sales for June 2012. He sold the shares for a profit of $8,768.

August 1, 2012: Purchased 5,600 shares of company stock one day before an earnings announcement reporting a 7% increase in consolidated comparable store sales for July 2012. The shares were sold for a profit of $5,906.

August 10, 2012: Purchased 5,700 shares just ahead of the August 14, 2012 press release reporting a 24% increase in second quarter earnings per share. The shares were sold at a profit of $8,615.

September 18, 2012: Purchased 5,200 shares of firm stock two days before the announcement of the quarterly dividend. The shares were sold at a profit if $2,288.

February 20, 2013: Purchased 5,500 shares of company stock just prior to the February 27, 2013 report of a 28% increase to adjusted earnings per share. The shares were sold for a profit of $1,100.

The purchases were made in violation of the company Global Code of Conduct Guide and its Insider Trading policy. The complaint alleges violations of Exchange Act Section 10(b).

Mr. Hannon resolved the action, consenting to the entry of a permanent injunction based on the Section cited in the complaint. He also agreed to pay disgorgement of $26,679, prejudgment interest and a penalty equal to the amount of the disgorgement. See Lit. Rel. No. 23574 (June 20, 2016).

Tagged with: ,