SEC Charges Three with Insider Trading in Connection with Company "Pivot" to Blockchain
Commentary by Steven Lofchie
The SEC charged three individuals with an insider trading scheme involving disclosure of confidential information in connection with a soft drink manufacturer's shift in its primary business "towards the exploration of and investment in opportunities that leverage the benefits of blockchain technology."
In a Complaint filed in the U.S. District Court for the Southern District of New York, the SEC alleged that the primary shareholder of the company tipped a broker with material nonpublic information regarding the announcement of the business shift, and that the broker in turn tipped a co-conspirator who purchased 35,000 shares in the company. The company made the announcement the following day, causing the intraday stock price to spike 388 percent. The SEC stated that, within two hours of the announcement, the co-conspirator sold all shares purchased the day before, realizing $162,500 in profits.
The Complaint alleges the individuals violated Section 10(b) of the Exchange Act and SEA Rule 10b-5 ("Employment of manipulative and deceptive devices").
The SEC is seeking (i) permanent injunctions, (ii) disgorgement, (iii) civil monetary penalties and (iv) an officer and director bar as to the controlling shareholder.
Commentary
While the process might have seemed straightforward at the time, the issuer ultimately failed to make the transition from soft drink manufacturer to blockchain technology firm.