SEC Doesn’t Only Target Big Fish

As proof that you don’t have to be a high-profile businessperson to be the target of a Securities and Exchange Commission investigation, seven golfing pals were recently charged with insider trading, netting illegal profits of $554,000.

The complaint alleges that a Waltham, Massachusetts man repeatedly provided non-public information about a tech company to six of his golfing friends. The source of the information was an executive of the tech company who belonged to the same country club as the lead defendant. The executive divulged expected earnings, contracts, and other major pending developments in casual conversation, not expecting the information to be acted upon.

Instead the lead defendant fed that information to his golfing buddies, often by email. The seven then traded and profited on the inside information.

Securities and Exchange CommissionIn the complaint, on one instance the lead defendant tipped two of his golf friends that the tech company’s fourth-quarter and fiscal year-end results would be weaker than forecast due to a problem with the company’s largest client. The two then placed bets, through option contracts, that the company’s stock price would decline. When the company announced its lower numbers, the stock price fell 42 percent, enabling the two defendants to make $278,289 and $191,521, respectively.

The SEC charged that the seven violated federal antifraud laws and the SEC’s antifraud rule. The action sought to have all seven enjoined, to return the ill-gotten gains with interest, and to require them to pay financial penalties of up to three times their gains.

When announcing the case, Paul Levenson, director of the SEC’s Boston Regional Office was quoted. “Whether the tips are passed on the golf course, in a bar, or elsewhere, the SEC will continue to track down those who seek an unfair advantage trading stocks,” he said. “Working with our partners in law enforcement, we are sending a message to all investors that insider trading does not pay.”

Dealing with the SEC isn’t for the weak of heart. Let RegTec help your business navigate the regulations and make sure all of your employees know the rules.

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