SEC Charges Massachusetts Resident's Drinking Buddy with Insider Trading (with Bondi Comment)
The SEC charged David Cancian with insider trading ahead of an April 5, 2011 announcement, by Massachusetts-based American Superconductor Corporation, that caused the company's stock price to tumble 42 percent.
According to the SEC's complaint, Cancian, while having drinks on April 1, 2011 with a friend who was a senior executive at American Superconductor, learned that the company's stock price was likely to drop. The next trading day, Cancian sold the majority of the American Superconductor stock that he owned and sold "covered call options" to offset losses on the stock that he continued to hold. On April 5, 2011, American Superconductor announced that its financial results for its fourth quarter and fiscal year ended March 31, 2011 would be lower than expected due to a deteriorating relationship with its primary customer. Its stock price plummeted 42% the next day.
Cancian has agreed to pay a total of $97,843 in the disgorgement of ill-gotten gains, prejudgment interest and a civil penalty to settle the insider trading charges.
Bondi Comment: At first glance, this appears to be a run-of-the-mill tipper-tippee case (although the complaint is vague), but it is notable that the SEC did not charge the tipper. Perhaps the SEC wants to keep its powder dry to proceed down either a misappropriation theory or a tipper-tippee theory.