As I have said before, this is simply amazing.
We represent a fair number of investors who have been called to respond to SEC inquiries in connection with insider trading investigations. Maybe that is why I understand and appreciate the ability of the Commission to find those who trade on inside information and those who are not as familiar with such investigations do not have the same understanding.
To be sure, there is apparently a never ending series of investigations into insider trading, as well as lawsuits and settlements brought by the Commission. However, the SEC often casts a very wide net in its insider trading investigations, and many investors who are subpoenaed have valid reasons for their stock transactions, and did not trade while in possession of material non-public infomation.
Perhaps the SEC is not doing a very good job of educating investors that buying stock based on material non-public information is illegal. Whatever the reason, last week there was yet another SEC suit filed and settled.
This time is a a couple of doctors. In recent months we have had attorneys, a mutual fund manager, a Yahoo Executive, a Hollywood movie producer, and others (see our insider trading stories for the details).
According to the SEC press release and complaint, one doctor was the Chairman of the Board of American Physicians Capital, Inc. He knew that the Board was looking into selling the company, and later, that the firm was taking definitive steps to sell. The Commission alleged that this was material non-public information, and that the doctor shared that information with his friends and family. The Commission also alleges that they purchased $2.2 million of the company's stock based on that information. When the acquisition was announced, the shares closed up 28% over the previous day's close.
According to the Commission's press release, collectively, they made more than $623,000 in profits on their ACAP stock following the announcement.
Now for the real lesson in this matter. With $623,000 in profits, they agreed to pay the Commission over $1.9 MILLION dollars to settle the charges. Apparently this is something else that folks don't know - is a pretty settlement for an insider trading case - you give back your profits (without taking a credit for any losses) and then pay a penalty that is twice the amount of the profits. That is some pretty serious stuff, never mind that insider trading is also a crime.
Keep it in mind when you get that "hot tip" on a stock. At the same time, even if you have a legitimate reason for purchasing the stock and the SEC comes calling, call an experienced securities attorney.
My number is 212-509-6544.