Insider trading has long been an enforcement priority for
the Manhattan U.S. Attorney's Office and the SEC. A string of high profile
criminal and civil insider trading cases attest to this fact. What is perhaps
less recognized is the fact that the SEC has long been pushing the edges of
what constitutes insider trading, moving toward what some commentators call a
parity of information standard. In cases such as SEC v. Steffes, Case
No. 1:10-cv-06266 (N.D. Ill. Filed Sept. 30, 2011)the Commission has challenged
the mosaic theory, pasting together bits of information observed at work to
allege that employees had inside information. In others the Commission has
challenged the requirement of deception and breach of duty, bringing an action
even when the company apparently authorized the employee to trade. SEC v.
Knight, Case No. 2:11-cv-00973 (D. Ari. Filed May 18, 2011); see also
SEC v. Obus, No. 10-4749 (2nd Cir. Sept. 6, 2012) (finding
breach of duty to company where a company investigation concluded otherwise).
In yet another case which appears to be pushing the
boundaries what constitutes inside information the Commission has now charged a
Toronto based investment banker with insider trading based largely on what he
pieced together about a deal while trying to win business for his company. SEC
v. Moore, 13 Civ 2514 (S.D.N.Y. Filed April 16, 2013) . The case,
charging violations of Exchange Act Section 10(b), is in litigation.
The action centers on the acquisition of Tompkins plc
whose ADRs are traded in New York by Canadian Pension Plan Investment Board or
CPPIB and a Canadian private equity firm. The deal was announced on July 19,
Canadian Imperial Bank, or CBIC, investment banker
Richard Moore's responsibilities included pitching possible investment
transactions to win business for his bank. He had three top clients, one of
which was CPPIB. Over time Mr. Moore had developed a business and personal
relationship with a Managing Director at CPPIB who was in charge of the
Tompkins acquisition. Mr. Moore periodically contacted the Managing Director,
In early February 2010 CPPIB was approached by a Canadian
equity fund about a possible acquisition of Tomkins. CPPIB studied the
transaction and began moving forward. The Managing Director was put in charge
of the transaction.
Subsequently, Mr. Moore repeatedly contracted his friend
and, based on those contacts and other information detailed below had inside
information, according to the complaint:
Seeking business: In
March 2010 when he contacted the Managing Director, Mr. Moore learned that he
was working on something big. When Mr. Moore asked if his bank could work on
the deal, he was told they would have to wait and see.
Another effort: In a
March 24, 2010 e-mail Mr. Moore asked his friend if debt was needed on the
deal. The Managing Director responded by inquiring if CBIC would underwrite $2
billion. Mr. Moore indicated "part yes" and asked "in Canada." He was then told
the deal was probably not for him.
London: As the Managing
Director continued to work on the deal from March to May, Mr. Moore learned
that his friend was traveling to London.
Chance encounter: In
June 2010 the two men attended a charity event. Mr. Moore observed the Managing
Director in a chance encounter with an unidentified man. Although his friend
declined to identify the individual, another person told Mr. Moore the man was
the CEO of Tomkins.
CBI e-mail: In a
June 24 e-mail a senior investment banker at CBIC complained that CPIB was
working on a "big deal" and the bank had no part of the work.
The day after the charity event Mr. Moore inquired with
contacts from another deal about purchasing securities outside the country.
Four days after the CBIC e-mail he purchased 51,350 Tomkins ADRs. He also
purchased 42,000 Tomkins common shares on an exchange outside the U.S. Later
Mr. Moore purchased an additional 170,000 shares outside the U.S. Overall, the
purchases represented about one third of his net worth. Following the deal
announcement Mr. Moore had profits on the ADR purchases of $163,000.
For more commentary on developing securities
issues, visit SEC Actions, a blog by Thomas
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