The Renewed Campaign on Insider Trading: Conclusion

As part of its campaign on insider trading the SEC has brought two cases against attorneys this year. The first was against Kevin J. Heron, former general counsel, corporate secretary and chief insider trading compliance officer of Amkor Technology. In this case the SEC claims that Mr. Heron traded in advance of financial releases on five occasions between October 2003 to June 2004. During that period Mr. Heron is alleged to have placed more than 50 trades netting him about $290,000 in illegal profits. Many of the trades were placed during black out periods mandated by policies that were administered by Mr. Heron. SEC v. Kevin J. Heron, Civil Action No. 07-CV-01542-HB (E.D. Pa. Filed April 18, 2007).

Mr. Heron has also been charged in a criminal case. The charges alleged that he engaged in a conspiracy with an employee of another company to exchange material non-public information. Like the SEC case, the criminal case claims that Mr. Heron traded while in possession of material non-public information during black out periods he instituted. The case also seeks forfeiture of proceeds traceable to each offense. U.S. v. Heron, Case No. 2006-cr-00674 (E.D. Pa. Filed April 3, 2006). Both of these cases are in litigation.

The SEC also brought a case against the managing partner of the Washington, D.C. office of Katten Muchin. In this case the Commission alleged that while interviewing a potential lateral partner candidate defendant Schwinger learned that Vastera would be acquired by JP Morgan. The partner candidate was the former general counsel of Vastra. Following the interview Mr. Schwinger purchased 10,000 shares of Vastra. The share price rose about 50% following the announcement of the takeover yielding a profit of $13,027. Mr. Schwinger settled the action by consenting to the entry of a statutory injunction and the entry of an order requiring him to disgorge the trading profits and pay prejudgment interest plus a civil penalty equal to twice the trading profits. SEC v. Schwinger, Civil Action No. 1:07-CV-01047 (D.D.C. filed June 13, 2007).

These two cases, along with the others we have discussed in prior segments of this series, are the leading edge of a renewed emphasis on insider trading by the SEC. While insider trading has long been a staple of the Commission’s enforcement program, in recent months there has been a world wide emphasis among regulators on insider trading. Regulators from the U.K. to China have repeatedly expressed concern about what has frequently been called rampant insider trading. Speculation about the reasons for the swell of insider trading include theories that a new generation on Wall Street does not remember the scandals of the 1980s and simple greed. Whatever the reason, it is clear that regulators around the globe are concerned about the riding tide of insider trading and are banding together to try and quell it.

As part of this world wide campaign, the SEC is renewing its efforts in this traditional enforcement area. This year the Commission has, as we have seen, initiated a number of high profile insider trading cases. Some of these cases are perhaps the most significant since the days of the insider trading scandals of the 1980s. In many instances the SEC has acted quickly, bringing cases within a matter of days of a take over announcement. This speed permitted the SEC to freeze the claimed trading profits before the trader had the opportunity to remove them from the account. Speed has its cost however. Many of those cases are in litigation where the SEC will have to use civil discovery to try and obtain the proof necessary to prevail at trial rather that its broad investigative powers. As these cases proceed to trial we will see if the speed was appropriate.

In the coming weeks we can expect to see not only past cases going to trial but more insider trading investigations and cases. As the SEC moves past the options backdating scandal in which it has been mired for months we can expect the emphasis on insider trading to continue. This will include increased scrutiny on 10b-5-1 plans which have been the subject of repeated comments by senior enforcement staff. There should be little doubt that in the months to come the SEC will continue its increased emphasis on insider trading, carefully scrutinizing not only safe harbors such as 10b-5-1 but all compliance plans. All of this suggests that general counsels and corporate officials should not only carefully review their compliance plans but continue to actively monitor them.