Two SEC Insider Trading Cases Involving Spouses

 The SEC filed two settled insider trading cases in which the husband is alleged to have misappropriated inside information from his wife. In each instance the husband understood he was not to trade. Yet in each case the husband traded and profited. In each case the husband settled with the Commission. SEC v. Hawk, Case No. 5:14-CV-01466(N.D. Cal. Filed March 31, 2014); SEC v. Chen, Case No. 5:14-cv-01467 (N.D. Cal. Filed March 31, 2014).

Hawk centers on the tender offer by Oracle Corporation for Acme Packet Inc., announced on February 5, 2013. Mr. Hawk’s wife was a finance manager at Oracle. Periodically she worked at home in an office shared with her husband.

On January 14, 2013 Mr. Hawk’s wife learned that her firm may acquire Acme Packet. She began working on the due diligence and was aware of the scheduled announcement date. Mr. Hawk overheard some of his wife’s telephone calls regarding the transaction. He was also told by his wife while she was working on the due diligence that Oracle had imposed a securities trading blackout for three weeks because of a potential acquisition.

On January 17 Mr. Hawk began purchasing shares of Acme Packet. Over the next two weeks he acquired a total of 28,000 shares valued at $669,000.

Prior to the open of the market on February 4, 2013 Oracle and Acme Packet announced an all-cash offer of $29.25 per share for Acme’s outstanding stock. That represented a premium of about 22% over the then current trading price. The next day the share price for Acme rose 23% to $29.59. Mr. Hawk sold all of his shares, realizing profits of $151,490. The complaint alleges a violation of Exchange Act Section 10(b).

To resolve the case Mr. Hawke consented to the entry of a permanent injunction prohibiting future violations of the Section cited in the complaint. In addition, he agreed to pay disgorgement of $151,480, prejudgment interest and a civil penalty equal to the amount of his disgorgement.

Chen also involves information obtained by a husband from his wife. Mrs. Chen was employed by Informatica Corporation as its Senior Tax Director. She was informed on June 28, 2012 that the firm would not meet its previously disclosed revenue guidance. This would be the first time in 31 consecutive quarters that the company would not meet guidance. In view of that fact the firm needed to finalize its quarterly results earlier that anticipated to determine if the earnings miss should be disclosed prior to the earnings call.

The next weekend the couple was scheduled to drive to Reno, Nevada for a weekend vacation. Although Mrs. Chen had scheduled a vacation day for Friday, she spent much of the time during the drive on work related telephone calls. She continued working into the evening. Mr. Chen heard the substance of the calls. He “gleaned from his wife’s business calls and behavior” that Informatica might miss its revenue numbers.

Despite an earlier admonition by his wife to never trade shares of her firm, on July 2 and 3, 2012 Mr. Chen sold Informatica shares short, sold call options and bought put options in four family brokerage accounts he controlled.

The firm disclosed that it would not meet its previously issued revenue guidance after the close of the market on July 5, 2012. The next day its share price tumbled over 27% from the prior day’s closing price. On July 6 Mr. Chen closed all of his positions, realizing profits of $138,068. The Commission’s complaint alleges a violation of Exchange Act Section 10(b).

To resolve the action Mr. Chen consented to the entry of a permanent injunction prohibiting future violations of the Section cited in the complaint. In addition, he agreed to pay disgorgement of $138,068, prejudgment interest and a civil penalty equal to the amount of the disgorgement.

 For more commentary on developing securities issues, visit SEC Actions, a blog by Thomas Gorman.

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