August 16, 2022

SEC Charges Three Individuals with Insider Trading

Ilan T. Graff Commentary by Ilan T. Graff

The SEC charged three individuals with securities fraud for engaging in insider trading in the securities of Equifax, Inc. prior to its announcement of a major data breach.

In the Complaint, filed in the Northern District of Georgia, the SEC alleged that the individuals disclosed and used material nonpublic information to purchase out-of-the-money, short-term put options in a personal brokerage account in anticipation of Equifax stock falling after the breach was announced. The SEC said the individual providing the information was an employee at a public relations firm retained by Equifax immediately following the data breach. The SEC further alleged that the former employee, upon learning of the breach, notified another individual, who then notified a third person who executed the trades. The individuals sold the put option contracts following a 14 percent drop in Equifax’s stock price.

The SEC alleged that the individuals violated Section 10(b) of the Exchange Act ("Regulation of the Use of manipulative and deceptive devices") and SEA Rule 10b-5 ("Employment of manipulative and deceptive devices"). Accordingly, the SEC is seeking relief in the form of (i) a permanent injunction, (ii) disgorgement of the profits received and (iii) civil monetary penalties for each individual charged.

Commentary

Insider trading cases involving digital assets have attracted outsized media attention this summer.  But as this enforcement action and other recent activity demonstrate, the SEC and DOJ remain keenly focused on “traditional” insider trading.  Despite enforcement agencies’ repeated emphasis on such cases’ importance for protecting markets, and notwithstanding some high-profile consideration on the Hill (see previous coverage), long-pending insider trading legislations remains unlikely to be enacted in the near term.

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