Jury Finds Pharma Employee Liable for Insider Trading
Commentary by Kevin Harnisch
A jury found a biopharmaceutical company employee liable for insider trading. In a Complaint brought in the U.S. District Court for the Northern District of California, the SEC alleged that the employee used confidential information about an impending announcement of the acquisition of his then-employer, to trade ahead of the news.
According to the Litigation Release, in its investigation, the SEC found that the employee "used the confidential information to purchase short-term, out-of-the-money call options of another comparable public company." The SEC alleged that investment bankers had referred to the comparable company during acquisition deliberations and that the acquired company had an insider trading policy which expressly forbade employees from using such confidential information to trade in the securities of any other publicly-traded company. The SEC alleged that the individual "purchased the options within minutes of learning the confidential information concerning the acquisition."
Following the public announcement, and just a few days after the employee purchased his stock options, the other public company's stock price increased by approximately 8%, generating illicit profits for the employee of over $100,000.
Commentary
The jury verdict is likely to embolden the SEC to scrutinize trading by individuals in the securities of their employer’s peer companies. Without any clear limiting principle of when such trading may run afoul of the SEC’s hindsight-driven analysis, trading in peer companies now carries additional and unpredictable investigative risks.
Companies should consider clarifying their insider trading policies to explicitly prohibit trading in the securities of other companies based in whole or in part upon information learned through the course of their employment at the company.