The Securities and Exchange Commission (SEC) recently brought insider trading charges against the former Chief Executive Officer of a fiber optics company.
The SEC Complaint alleges that Peter Chang, founder, CEO and chairman of the board of Alliance Fiber Optic Products utilized secret brokerage accounts in the names of family members (wife and brother) to trade in his company stock while in possession of material, non-public information. The SEC claims that Chang made more than $2 million in illegal profits and avoidance of losses from his insider trading, and from the tipping of his brother in advance of negative company earnings announcements and the company’s merger.
Chang, the SEC alleges, secretly traded company stock in family member accounts, quite frequently from his computer at work, after learning confidential, non-public information at board meetings. Chang also tipped his brother in Taiwan with inside information, including the company’s acquisition via a tender offer, the SEC charged.
Chang allegedly tried to conceal his control over one of the secret trading accounts by holding himself out as his brother in discussions with one of the brokerage firms, and also allegedly obscured his relationship with his wife when responding to a Financial Industry Regulatory Authority (FINRA) market surveillance inquiry.
The SEC’s Complaint charges violations of the anti-fraud provisions of the federal securities laws, among others, and seeks disgorgement with prejudgment interest plus a civil penalty, permanent injunction, and officer-and-director bar.
Chang is also facing criminal charges for the same purported insider trading conduct in the Northern District of California.
If the SEC’s allegations are true, Chang was not so clever or at all sophisticated in his attempts to hide his illegal insider trading.
First, the SEC can trace securities orders originating from a particular computer. Chang’s decision therefore to utilize his work computer to trade in his company’s stock was, to say the least, not so bright.
Second, Chang’s use of securities accounts in the names of close family members was similarly inept. Inevitably, the SEC will flag and target those accounts for investigation given the highly suspicious timing of their trading in the company’s stock. Whether through its proprietary big data technology, or through the older-school method of receiving information from FINRA (which will obtain information directly from the company as to who knew what and when, and what, if any, relationships company officials had with identified traders), the SEC will typically get there. And, once there, it will not take the SEC long to figure out that a family member probably just did not get lucky in perfectly timing a trade in advance of the company’s merger.
Chang’s insider trading conduct, as alleged, was egregious, easily traceable and — coupled with his efforts to misrepresent and obfuscate when confronted by third-parties after-the-fact –made this a no-brainer candidate for criminal prosecution.
David Chase is a SEC defense attorney and former SEC Prosecutor who represents and defends those around the world who are being investigated or prosecuted for insider trading in SEC investigations or insider trading criminal cases. Mr. Chase is the principal of the Law Firm of David R. Chase, a SEC law firm, located in Fort Lauderdale, Florida. For a confidential consultation, you may contact Mr. Chase at: email@example.com or toll-free at: (800) 760-0912. The law firm’s website is: securitiesfrauddefense.net.