SEC Wins Jury Verdict in Insider Trading Case

The SEC prevailed at trial, winning a jury verdict is an unusual insider trading case against a former Capital One Financial Corporation employee. SEC v. Huang, Civil Action No. 15-cv-269 (E.D. Pa. Filed Jan. 22, 2015).

The complaint alleged insider trading based on the misappropriation theory against two former employees of the financial institution, Bonan Huang and Nan Huang. From November 2013 through January 2015 the two defendants were alleged to have misappropriated material inside information from their employer and used that information not to trade in the shares of Capital One but those of retail establishments reflected in the credit card statements of Capital One card holders. The scheme generated over $2.8 million in trading profits in one of their accounts.

During the period the defendants, employed as data analysts, were tasked with analyzing transactions for possible fraudulent credit card activity. As such the two men had access to customer data held by the financial institution. That included details on numerous consumer purchase transactions.

Using their access to Capital One customer data, the two defendants conducted thousands of searches, analyzing retail transactions. The defendants accessed data regarding transactions at over 140 retail establishments that accepted Capital One credit cards. The defendants used this data to trade, according to the SEC. For example, prior to an earnings announcement by a retail store the defendants would retrieve data about a particular store from the charge accounts of Capital One cardholders and analyze the sales trends. Trades were then placed in the securities of the company. This permitted the two defendants to successfully trade in the shares of the company in violation of the specific policies of their employer.

At the time the complaint was filed the defendants consented to the entry of a temporary freeze order. See Lit. Rel. No. 23179 (Jan. 22, 2015). Subsequently, the two defendants consented to the entry of a preliminary injunction. That order essentially extended the initial temporary order. See Lit. Rel. No. 23216 (March 10, 2015). Defendant Bonan Huang settled with the Commission shortly before trial, consenting to the entry of a permanent injunction based on Exchange Act Section 10(b), and agreeing to pay disgorgement, prejudgment interest and penalties totaling over $4.7 million. See Lit. Rel. No. 23438 ( December 23, 2015.

Defendant Nan Haung was found to have violated Exchange Act Section 10(b) by a jury following trial. Remedies will be decided in the future. See Lit. Rel. No. 23445 (January 14, 2016).

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