David R. Chase, P.A.
Call Us Now: 800-760-0912
David R. Chase, P.A.
Call Us Now: 800-760-0912

CALL TOLL FREE
800-760-0912

Insider Trading Should Not Be a Team Sport

insider trading investigation

The United States Securities and Exchange Commission (SEC) recently secured final court judgments against five individuals who were alleged to have worked in concert to engage in illegal insider trading by capitalizing on material, nonpublic information.  Four traded on the inside information given by the fifth and then passed it on to friends and family.

Based on the alleged underlying insider trading activity, the SEC complaint charged the defendants with violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder.

The SEC contended in its enforcement action that Joseph Dupont, the Vice-President of Alexion, a global biopharmaceutical company, was significantly involved in the anticipated purchase of Portola, also a biopharmaceutical business.  Notwithstanding frequent reminders of his obligation to maintain the confidentiality of this work, the SEC claims he told his close friend, Shawn Cronin, of the anticipated purchase.  Cronin, in turn, is alleged to have conveyed the inside information to two of his close friends, Jarrett Mendoza and Stanley Kaplan.

In a daisy chain effect, Kaplan then passed the material, non-public information to his friend Paul Feldman, as well as to a relative.  Feldman, for his part, told two of his relatives and four of his medical colleagues.  The seven other friends and relatives traded on that information, but did not act in concert with the five defendants, per the SEC.

In its court filing, the SEC claimed that prior to the public announcement of the corporate purchase, the defendants, via several personal meetings, telephone calls and text messages, discussed purchasing Portola stock and out-of-the money call options.  On the day of the public release of the news, Portola stock surged more than 130% allowing the defendants to handsomely profit.

In resolving the SEC cases, the defendants consented to entry of final judgments containing permanent injunctions from violating the provisions of the federal securities laws charged in the complaint and barred each from serving as an officer or director of a publicly traded company.

Notably, the defendants previously pled guilty to criminal charges for the same underlying insider trading conduct in parallel criminal cases brought by the U.S. Attorney’s Office for the Southern District of New York.

From a SEC defense counsel perspective, the further down-stream from the original source of the passing of the material, non-public information the remote-tippee trader is (i.e., the further down from the top of the daisy chain), and presumably the less (if any) knowledge that trader has regarding who originally breached their duty in conveying the inside information and for what presumed benefit, the harder it is for the SEC and DOJ to successfully prosecute.

And, yes, the SEC does not view insider trading as a legitimate team sport.

Charged in an Insider Trading Investigation?

Insider trading attorney David Chase, Esq. of the Law Firm of David R. Chase,  has successfully represented individuals in SEC insider trading investigations around the country for over two decades.  If you have received a SEC insider trading subpoena and are seeking seasoned, strategic advice from an insider trading lawyer, contact David at: 800-760-0912 or e-mail him at: david@davidchaselaw.com.  Visit the Firm’s website for more information on how to beat insider trading investigations at: www.securitiesfrauddefense.net.

Related Posts