Overview
On July 25, 2022, the Securities and Exchange Commission (SEC or the Commission) made headlines announcing insider trading charges against 10 individuals across four separate cases, signaling an increased and renewed focus on insider trading. The enforcement blitz comes on the heels of the SEC's first insider trading case involving "crypto asset securities," and a month after the Department of Justice brought insider trading charges based on trading of non-fungible tokens. Parallel criminal charges were also filed against certain defendants named in the SEC's actions. In an interview earlier this year, SEC Chairman Gary Gensler foreshadowed the Commission's focus on insider trading, stating that the issue "comes down to trust in our capital markets and trust that there's a level playing field."
The Commission attributed the charges in three of the four cases filed this week — Bhardwaj, Goel, andMarkin — to data analytics performed by the Market Abuse Unit's Analysis and Detection Center, which uses data analysis tools to identify suspicious trading activity. SEC Enforcement Director Gurbir Grewal noted that use of these tools allows the Commission to leverage all its expertise to "root out misconduct and hold bad actors accountable no matter the industry or profession." Public companies and other market participants must ensure they have taken reasonable steps to protect the confidentiality of their material nonpublic information and be certain that their policies and procedures apply to officers, directors, employees and third parties who have access to confidential information.
Insider Trading Cases
SEC v. Amit Bhardwaj
Former CISO of Lumentum Holdings Inc., Amit Bhardwaj, is alleged to have shared nonpublic information regarding Lumentum's planned acquisition of two tech companies with a number of his friends: Dhirenkumar Patel, Srinivasa Kakkera, Abbas Saeedi and Ramesh Chitor. According to the complaint, Bhardwaj's codefendants traded on this information and subsequently transferred profits to Bhardwaj and his relatives. The SEC alleges that Bhardwaj and his friends profited by over $5.2 million from the illegal trading.
SEC v. Brijesh Goel
In a similar case, the SEC alleges that an investment banker, Brijesh Goel, passed information regarding four corporate mergers in advance of their announcements to a friend, Akshay Niranjan, who was a foreign exchange trader at an unnamed financial institution. According to the SEC's complaint, Goel and Niranjan first began exchanging insider information as early as 2017. The SEC alleges that the two defendants generated more than $275,000 in illicit profits from trading related to the four unannounced mergers.
SEC v. Markin
Seth Markin, a former FBI trainee, and his friend, Brandon Wong, are alleged to have traded on confidential information regarding the planned acquisition of Pandion Therapeutics by Merck & Co. Inc., profiting by nearly $1.4 million in the process. In its complaint, the SEC alleges that Markin obtained this information from his then-romantic partner, an associate at a major law firm representing Merck in the acquisition. Markin is alleged to have covertly reviewed documents his partner kept in their apartment while working from home, and to have passed that information to Wong.
SEC v. Buyer
The SEC also announced insider trading charges against former U.S. Rep. Stephen Buyer of Indiana. According to the SEC's complaint, Buyer is alleged to have purchased securities in advance of two separate merger announcements for clients he had provided consulting services to, reaping over $300,000 in profits as a result. The SEC alleges that Buyer executed trades using a number of different accounts, including accounts belonging to relatives and acquaintances. The Commission is also seeking disgorgement from Buyer's wife, Joni Lynn Buyer, to prevent unjust enrichment from the trades that Buyer allegedly executed using a brokerage account opened in her name.
Conclusion
As the SEC renews its focus on insider trading enforcement, we can expect existing cases to gain speed and new enforcement actions to be initiated swiftly and aggressively. The Commission will also continue to rely on the use of data analytics to root out suspicious trading patterns. Insider trading policies should be broad enough to apply to third parties such as consultants and others who routinely have access to material nonpublic information. To aid in fraud deterrence, companies should consider reviewing or revising employee trainings to highlight the SEC's successful use of data analytics to identify anomalous trading patterns, which has led to enforcement actions against wrongdoers. Market participants would be well-advised to ensure that they are operating within the confines of the applicable laws, regulations and best practices as SEC Chair Gensler continues to direct enforcement resources toward deterring fraudulent market activity. The BakerHostetler White Collar, Investigations, and Securities Enforcement and Litigation team and Blockchain Technologies and Digital Currencies team are comprised of dozens of experienced individuals, including partners who have served in the SEC's Enforcement Division and the SEC's Office of the General Counsel, as well as attorneys with extensive experience across all sectors of the blockchain and cryptocurrency markets, including investigations, BSA/AML compliance, tax, privacy, transactions, intellectual property and technology design.
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