Securities

SEC Partially Settles Insider Trading Action Based on Gift to Romantic Partner

 The SEC filed an insider trading action in which the tipper partially settled the action. While the complaint alleged that the tippee knew of the breach of duty and that the information was gifted to him by his romantic partner, he did not settle. SEC v. Spivak, Case No. 1:15-cv-13704 (D. Mass. Filed November 2, 2015).

Defendant Shirmila Doddi was employed as a financial analyst in the commercial banking group of Wells Fargo Bank, N.A. Defendant Vlad Spivak is unemployed but day trades.

This action centers on the acquisition of American Dental Partners, Inc. by JLL Partners, Inc., announced on November 7, 2011. American Dental provides management services to dental group practices. JLL is a private equity fund.

The transaction began in March 2011 when representatives of Wells Fargo Securities met with American Dental regarding the possibility of a merger and acquisition. The firm was interested in acquisitions but did not view itself as a target. Two months later Ms. Doddi was assigned by Wells Fargo Bank – an affiliate of Wells Fargo Securities – to be the financial analyst for American Dental.

Early in 2011 Ms. Doddi met Mr. Spivak at a dance club. A self-described day trader, he frequently discussed different stocks with her. Over time their romantic relationship grew. Mr. Spivak also repeatedly requested inside information, noting that insider trading was “not a big deal and that individuals rarely get caught,” according to the complaint.

In September 2011 the investment bankers prepared a presentation for American Dental. The materials were sent to Ms. Doddi in a September 26, 2011 email. The next month she received an email from the bank’s relationship manager for American Dental stating that the CFO of the company told him the firm would be acquired by JLL Partners for $20 per share. The announcement was scheduled for early November 2011.

While Ms. Doddi repeatedly refused to provide her Mr. Spivak with inside information, between October 6, 2011 and October 13, 2011 she told him about the possibility of the American Dental merger. On October 13, 2011, less than an hour after receiving an email from the bank relationship manager confirming the deal, Ms. Doddi sent a text to Mr. Spivak confirming that the transaction was going forward. Mr. Spivak knew, or should have known, that the information had been furnished in breach of Ms. Doddi’s duty to her employer.

Ms. Doddi did not trade based on the information. Rather, the complaint states that “in tipping Spivak, she conferred a gift upon a romantic partner.” Mr. Spivak purchased 17,100 shares of American Dental in three accounts in his name and an additional 8,000 shares through his mother’s account. Following the deal announcement he sold the shares at a profit of $222,357.

The complaint alleges violations of Exchange Act Section 10(b). Ms. Doddi settled, consenting to the entry of a permanent injunction prohibiting future violations of Exchange Act Section 10(b). Determinations regarding the appropriate amount of disgorgement, prejudgment interest and penalties will be resolved in further proceedings. Mr. Spivak did not settle. See Lit. Rel. No. 23398 (November 2, 2015).

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

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