By Ann C. Logue
You would think that people would understand that insider trading is wrong and that they are likely to be caught, and yet, this week’s SEC actions included two incidents of alleged insider trading. In fairness to insider traders, the SEC is sometimes slow. People may think they are getting away with it, until they are not.
On August 16, the commission announced charges against Matthew Panuwat, who was head of business development at Medivation, a biotechnology firm. Medivation was acquired at a premium by Pfizer (NYSE: PFE) in 2016. Panuwat was smart enough to know that he shouldn’t trade in Medivation. Instead, he bought out-of-the-money calls on Incyte Corporation (NASDAQ: INCY), a different biotech company. In his role at Medivation, Panuwat knew that the investment bankers were using Incyte as a peer company, and he apparently reasoned that the selling price of Medivation would drive up the price of Incyte as soon as the deal was announced. The alleged inside information was the knowledge of Medivation’s sale. When it was announced in August of 2016, Incyte’s price went up by 8% and Panuwat made $107,066. He will probably spend far more than that on legal bills. The SEC is asking for a permanent injunction, a civil penalty, and a bar on Panuwat serving as an officer or director of a public company.
On August 19, the SEC announced charges against an alleged insider trading ring at Netflix (NASDAQ: NFLX). Beginning in 2016, engineer Sung Mo Moon apparently shared knowledge of Netflix’s subscriber growth numbers to his brother and a friend so that they could place trades in advance of quarterly earnings announcements. Moon left Netflix in 2017 but allegedly had two friends who still worked there give him the subscriber numbers in advance. The group had total profits estimated at $3 million. Although the conspirators used encrypted messaging apps and exchanged cash, the SEC has ways of getting information.
The SEC tends to be aggressive about insider trading. When it can’t prove its case, it tends to use side charges such as failure to supervise or obstruction of justice (the charge against Martha Stewart). The current trend toward retail trading and meme stocks may well catch more people who don’t understand the consequences.