SEC Charges Close Friend of Staffing Company CEO with Insider Trading Around Acquisition

The SEC brought an interesting insider trading case where the (apparently unsuspecting) tipper was the head of a public company who disclosed nonpublic details of the company to a person with whom he had a "close friendship." According to the complaint, this information was expected to be maintained in confidence "by implicit understanding and express agreement . . . ." [It would be interesting to know to what extent the SEC is going to rely on the implicit understanding, rather than the express agreement.] As to other information, the complaint asserts that the information was "expected to be maintained as confidential." Further the complaint mentions the two men's "close relationship and long history of sharing confidences" and the fact that the head of the company "did not conceal" confidential documents from his friend. In any case, the close friend then used the information to trade at a profit. Finally, the complaint asserts that the friend who used the information had a "general understanding of the restrictions and prohibitions against insider trading." There is no assertion in the complaint that the person who provided the inside information was acting for any improper motive.

For a further discussion of current topics in insider trading, link to Broker-Dealer Guide, The Law of Insider Trading.

Cross Reference(s): Exchange Act Sections 10(b) and 14(e); Exchange Act Rules 10b-5and 14e-3.

For more information about this document, you may contact one of the following Cadwalader attorneys: Bradley J. Bondi; Adam S. Lurie.

View litigation release in full here (links externally to SEC website).Additional Materials: SEC Press Release; SEC Complaint.