October 28, 2019 Category: Business & Corporate Law
Late last year, a University of Michigan faculty member was named as the person who provided information to a hedge fund manager at SAC Capital Advisors LP in New York, allowing that hedge fund to make nearly $300 million based on the supposedly leaked data. The Securities Exchange Committee (SEC) filed criminal charges against the hedge fund last month alleging insider trading, wire fraud and numerous counts of securities fraud.
SAC Capital is currently facing a number of insider trading charges and the SEC claims that the owner failed to adequately supervise his company’s employees. This latest case is labeled as “the most lucrative insider trading scheme ever charged” by the U.S. Attorney’s office and the case is being closely watched by investors, company owners and brokers across the nation.
The Michigan neurologist was a researcher at the university and acted as chair of a safety-monitoring committee, overseeing clinical trials of a drug used to treat individuals with Alzheimer’s disease. While living and working in Michigan, he moonlighted as a consultant to the hedge fund and other similar companies.
During the clinical trials at the university, it was discovered that the Alzheimer’s drug was not working out as hoped and the researcher allegedly informed the hedge fund manager of this fact. That inside information supposedly allowed the manager to dump stock, avoiding losses and earning his company a combined amount of over $250 million.
The researcher was not named in the criminal complaint in exchange for his testimony and he may serve as the key witness against the company for which he consulted. He is, however, facing civil charges and was ordered to forfeit money he earned as a consultant.
While not all insider trading is illegal, there is a fine-line distinction and it is important for those who use and work with market information to know the distinctions between legal and illegal trading. While a number of news sources are arguing that insider trading should be legalized, a change in the law is unlikely. While academics point out that insider trading is ill-defined and merely blocks the free flow of information, federal prosecutors continue to bring claims, forcing companies to defend themselves from criminal and civil charges.
If you or your company is facing charges of securities fraud, insider trading or regulatory violations, seek the counsel of an experienced securities attorney. A lawyer knowledgeable about defending individuals and companies from such claims may be able to help.