On August 17, 2021, the U.S. Securities and Exchange Commission (“SEC”) charged the former head of business development at Medivation, Inc. with insider trading. The employee, Matthew Panuwat, purchased stock options of Incyte Corporation, a competitor to Medivation, a few days before the public announcement that Pfizer Inc. would acquire Medivation. According to the SEC’s complaint, Panuwat received confidential information during his employment at Medivation related to the upcoming acquisition, including information that Incyte had been cited as a comparable company. The SEC alleges that Panuwat then exploited that confidential information by purchasing stock options in Incyte in anticipation that the announcement of the acquisition would cause an increase in the stock price. The day the acquisition was announced, Incyte’s stock price increased by about 8% and Panuwat sold the options resulting in an illicit profit of $107,066.
Insider trading cases are typically centered on the trading of securities in the company in which the information obtained. What makes this insider trader case distinct is that Panuwat did not trade in the securities of either of the companies involved in the acquisition, but instead engaged in “shadow trading.” Shadow trading involves trading securities of one company while in possession of material non-public information of another closely correlated or economically linked company.
In light of this recently filed complaint, Greyline encourages our clients to consider the following:
- Review current insider trading policies and procedures to determine if risks are properly identified and mitigated based on your firm’s business and investment strategies.
- Enhance employee training by adding additional guidance around material non-public information and restrictions on trading in securities other than those contained in the information.
- Assess the likelihood that information of a comparable company could be received when signing NDAs, accessing data rooms, or when permitting employees to serve as directors of both public and private companies.
- Conduct focused employee trade reviews to identify unusual trading in the securities of economically linked securities.
- Address the risks associated with obtaining material non-public information from portfolio companies. Consider restricting employee trading in comparable companies in which material non-public information has been received when evaluating potential transactions.
These allegations indicate the SEC continues to take an aggressive approach to insider trading. As such, Greyline suggests reviewing the full litigation release, as well as firm policies and procedures, and reaching out to your Greyline representatives to discuss your questions and concerns.
The full litigation release can be viewed at SEC.gov.