Wednesday, August 29, 2012

SEC Charges Eight in Insider Trading Ring - Really? A "Ring"?

I don't think that a group of friends buying a stock based on a buddy's recommendation constitutes an insider trading "ring" but if what the SEC says they did is true, it is certainly insider trading and illegal.
The SEC charged eight individuals living in the Griffin, Ga., area for their involvement in an insider trading "ring" that generated more than $500,000 in illegal profits based on nonpublic information about an upcoming company merger.Four of the eight men agreed to settle the SEC’s charges and pay back all of their ill-gotten gains plus interest and penalties for a combined total of more than $175,000.
Here is the issue for the Commission - the original tipster in the case is the accountant for a member of the Board of Directors of a company that was going to be acquired. The accountant told his partner and three of his friends. One of those friends in turn is alleged to have tipped three of his friends.
The problem for the Commission, and the defense for the traders, is the concept of scienter, a guilty mind. The SEC has to prove that the defendants knew that they were trading on material, non-public information, in violation of a duty not to trade.
The farther we get from the original source of the information, the more difficult that burden becomes, and the friends of friends of the accountant to the Board member may very well have a defense to the charges. That is something that an experience securities attorney can assist with. Our firm's attorneys have the experience and knowledge necessary to make that evaluation and develop those defenses. If you have concerns regarding insider trading contact me at astarita at beamlaw dot com, or at 212-509-6544.
For more information on this alleged insider trading "ring" see the SEC's press release at SEC Charges Eight in Georgia-Based Insider Trading Ring  which also contains the various complaintes the SEC has filed against the alleged insider traders.dd
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