The US Securities and Exchange Commission posts names and details of those it has named in enforcement actions under the insider trading laws. These prohibit the purchase or sale of a security in breach of a fiduciary duty or other relationship of trust and confidence while in possession of material, nonpublic information. Actions in 2014 ( See http://www.sec.gov/spotlight/insidertrading/cases.shtml) included:
- Two clinical drug trial doctors, who traded based on knowledge the FDA had halted trials of a new drug;
- Three sales managers, who traded based on knowledge about an acquisition;
- Three software company founders, who took advantage of errors in the media before their company’s sale;
- An ecommerce company executive and five people he tipped off about a pending purchase of his company by Ebay;
- A biopharmaceutical company sales rep, and the doctor and patient he tipped off about developments on a new drug;
- A former BP site cleanups employee who advised family members to sell after he learned the severity of the Deepwater Horizon spill in the Gulf of Mexico;
- Two friends of an investment banker who learned about a pending transaction between an engineering and a construction company;
- Two husbands who traded (in different cases) based on information about Silicon Valley tech companies where their wives worked;
- A stockbroker and a law firm clerk who traded based on information in the law firm’s computer system;
- An investment banker who traded in a former girlfriend’s account based on inside information so he could pay more than $1 million in child support; and
- A Chicago-based accountant who made more than $250,000 in trades based on financial information not yet released by his employer.
The M&A Practice Lesson: Loose lips (and other failures to restrict information distribution) can sink ships and also cause criminal and civil penalties for insiders and outsiders who use confidential information about deals to line their pockets. This applies to both public and non-public company securities and deals.