SEC Continues To Emphasize Insider Trading

The SEC closed out the government fiscal year by continuing its emphasis on insider trading cases. On Friday, the SEC filed two additional insider trading cases.

In SEC v. McKay, Civil Action No. 5:07-CV-00378-H (E.D.N.C. Filed Sept. 28, 2007), the Commission filed a settled enforcement action against the spouse of a former Triangle Pharmaceutical, Inc. executive. According to the complaint, defendant Daniel McKay misappropriated inside information from his wife, who is a former Triangle executive. Mr. McKay traded for his own account after obtaining the information and, in addition, tipped two siblings. Mr. McKay is alleged to have made $11,416 from his trades. To resolve the action, Mr. McKay consented to the entry of a statutory injunction and an order directing that he pay disgorgement and prejudgment interest of $12,458.98 and a civil penalty of $11,416. The Commission’s Litigation Release on this matter can be seen here

The second action, SEC v. Chavarria, Civil Action No. 1:07-CV-820-LY (W.D. Tex. Filed Sept. 28, 2007), named three Dell, Inc. accountants as defendants. According to the complaint, the three accountants traded in Dell securities and options in advance of earnings announcements. Two of the defendants agreed to settle the case by consenting to the entry of a statutory injunction and an order requiring that they disgorge the profits, along with prejudgment interest, and pay a penalty equal to the profits disgorged. The Litigation Release is here

These two cases are part of a renewed emphasis by the SEC and regulators around the globe on insider trading. The McKay case is one of several “pillow talk” cases brought this year. In some of those cases, the SEC has alleged that spouses traded together. In others it has been claims that one spouse traded on information misappropriated, as in the McKay case.

The Chavarria case is just one of several brought by the SEC against corporate executives. Many of those cases have focused on trading prior to the announcement of a significant corporate event such as a merger. Others, like Chavarria, have alleged that the executives traded prior to earnings announcements.

While these two cases are, for the most part, settled, the SEC is still litigating other significant insider trading cases it filed earlier this year as part of its new emphasis in the area. That emphasis stems at least in part from congressional hearing held last fall on insider trading and a congressional report on an SEC investigation that directed more resources be expended on such investigations.

To date, the SEC has brought not only a significant number of insider trading cases but some which it claims are the most significant since the late 1980’s. Unlike many of its cases however, a significant number of high profile insider trading cases have not settled. Some of those cases appear to be based on little more than the basic trading data that can be obtained from the brokers. While the SEC has been very aggressive in many of these cases, the key will be whether it can successfully litigate the case. Given the difficulty of detecting and proving insider trading cases, the SEC may find it difficult to prevail in at least some of these cases.