SEC Charges Corporate Attorney and Wife with Insider Trading (with Bondi Comment)

The SEC charged an attorney and his wife with insider trading on confidential information obtained from a corporate client.

The SEC alleged that, while serving as outside counsel to Spectrum Pharmaceuticals last year, the attorney learned that the company was on the brink of announcing a significant decline in expected revenue. The attorney then sold his entire investment in Spectrum stock within 48 hours of receiving the nonpublic information from company officials. He also tipped his wife, who sold all of her Spectrum shares, about the nonpublic information. The day after the attorney and his wife sold their stock, Spectrum issued a press release revealing its expectation of decreased sales.

Bondi Comment: This enforcement action is a textbook example of the misappropriation theory of insider trading. Like the famous O'Hagan case in which the Supreme Court first laid out the theory, this matter involves a lawyer who traded on material, nonpublic information obtained from a client in breach of his duty to that client. In a period of frequent actions under the tipper-tippee theory, this enforcement action is a reminder that the misappropriation theory is alive and well.

See: SEC Complaint; SEC Press Release.See also: Insider Trading Specialty Page (available to Cabinet subscribers only).