The U.S. Securities and Exchange Commission (SEC) is continuing its pursuit of enforcement actions against insider trading, and this year is no exception. Notably, the SEC just recently filed an enforcement action against a former executive at a beverage company. The complaint alleges that the former executive purchased about 15,000 shares of his company stock through his wife’s brokerage account after learning that his company had agreed to acquire its bottling operations in Norway and Sweden. The stock price jumped 30 percent when the deal was announced publicly the following day, enabling the former executive to make over $86,000 in profit.
In the complaint, the SEC noted that the former executive had a relationship of trust and confidence with the company and was regularly in possession of sensitive and confidential information. Furthermore, the former executive signed a nondisclosure agreement confirming that he would maintain the confidentiality of all information learned regarding the company’s proposed acquisition. The former executive also received a blackout notice prohibiting him from trading in company stock for a defined period in which he was likely to be in possession of information concerning the proposed acquisition.
During an investigation, the former executive admitted that he had placed the trades in his wife’s account and had received notice of the blackout period before he purchased the 15,000 shares. The SEC is seeking an order from the court to: disgorge the former executive’s alleged unlawful profits, have the former executive pay prejudgment interest, impose a civil penalty (which can be up to three times the profits), and prohibit the former executive from acting as an officer or director of any publicly traded company. This case illustrates that executives, employees and employers should be aware of the high risks involved with insider trading, and the power the SEC has in investigating and bringing enforcement actions which have already resulted in a civil penalty fine of $3 million this year. It also suggests the benefit in companies performing their own internal investigations in an effort to diminish any company-wide investigation by the SEC.