SEC Insider Trading Cases as Administrative Proceedings – A New Trend?

Traditionally, the SEC has brought insider trading cases as civil injunctive actions. The recent emphasis on administrative proceedings, however, appears to be changing that. Earlier this week the agency brought an insider trading cases as an administrative proceeding against a Wells Fargo Analyst and Trader, In the Matter of George T. Bolan, Jr., Adm. Proc. File No. 3-16178 (September 29, 2014). Last week the SEC brought an insider trading case against an associate of an unregistered investment adviser, In the Matter of Richard O’Leary, Adm. Proc. File No. 3-16166 (September 25, 2014). Yesterday, the Commission added to the growing list, filing two related proceedings against a friend of a hedge fund Analyst and his tippee. In the Matter of Filip Szymik, Adm. Proc. File No. 3-16183 (September 30, 2014); In the Matter of Jordan Peixoto, Adm. Proc. File No. 3-16184 (September 30, 2014).

Filip Szymik is employed as a consultant in New York City. His roommate and friend is an Analyst at Pershing Square Management, L.P, a hedge fund lead by well-known activist investor William Ackman. The analyst began working at Pershing Square as an intern. Later he became a full time employee. In that capacity he acknowledged in writing the compliance procedures of the firm which directed that he not disclose inside information.

Beginning in September 2012 he was part of an investment team assigned to research Herbalife. Though that position he learned that Pershing had concluded the company was an illegal pyramid scheme. He also knew that the firm intended to disclose its conclusion at a conference on December 20, 2012.

While the Analyst worked on the Herbalife team, and before, he was roommates with his childhood friend, Filip Szymik. Both grew up in Poland. The Analyst has instructed his roommate that the work at Pershing is highly confidential and could not be disclosed or used to trade securities.

Prior to December 19, 2012 the Analyst disclosed to his friend and roommate that he was working on Herbalife. He also told Mr. Szymik that the firm had a negative view which would be disclosed on December 20.

One of Mr. Szymik’s close friends is Jordan Peixoto, a research analyst at Deloitte. Although he lives in Toronto, during December 2012 he was working in New York City. The two men spent nearly every weekend together.

Prior to December 19, 2012 Mr. Szymik told his friend about Herbalife, the position of Pershing Square and the pending presentation. Mr. Peixoto knew that his friend’s roommate was an analyst at Pershing Square and that the work was confidential. Nevertheless, just before 2:00 p.m. on December 19, 2012 he purchased Herbalife options. Shortly after those purchases, CNBC reported that Pershing had acquire a significant short position in Herbalife and was making a presentation the next day.

Following the CNBC report, and the Pershing presentation on December 20, 2012, Herbalife stock declined by 39%. By the close of the market on December 21 Mr. Peixoto’s options had increased in value to about $339,421. He asked his brokers to let them expire worthless. One refused, giving him a profit of $47,100.

Each Order alleges violations of Exchange Act Section 10(b). Mr. Szymik settled with the Commission, consenting to the entry of a cease and desist order based on the Section cited in the Order. He also agreed to pay a civil penalty of $47,100. Mr. Peizoto did not resolve his action. It will be set for hearing.