Recent enforcement action could signal expanding the boundaries of misappropriation theory, with significant implications for SEC-regulated entities and other market participants.
TAKEAWAYS
- With Chair Gensler at the helm, an emboldened SEC Enforcement Division will continue to take aggressive positions in insider trading enforcement actions and is willing to test the contours of insider trading law in litigation.
- The Panuwat enforcement action advances the novel theory that possessing confidential information about one issuer may preclude trading in the securities of competitors and other companies in a business sector.
- In light of the increased risk posed by the Panuwat matter, regulated entities and other market participants should review their policies and procedures to ensure that they are reasonably designed and tailored to
prevent the misuse of material nonpublic information.
On August 17, 2021, the U.S. Securities and Exchange Commission (SEC) charged a former pharmaceutical company executive with insider trading for purchasing the securities of a rival company based on confidential information he learned about his own employer’s contemplated merger with another pharmaceutical company. The SEC’s enforcement action, which is being litigated in the United States District Court for the Northern District of California, appears to confirm early predictions that the SEC, with Chair Gary Gensler at the helm, would aggressively police the securities markets for insider trading.
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