In U.S. Securities and Exchange Commission v. Christopher Clark, et al., the U.S. District Court for the Eastern District of Virginia dismissed an SEC insider trading case as a matter of law. By granting the defendant's motion for judgment as a matter of law, the case was resolved before any defense was offered by the defendant, who was the alleged tippee.
The SEC's Complaint alleged that one defendant bought "out-of-the-money" call options based on material nonpublic information provided by the other defendant, the company's corporate controller who reportedly did not trade. The alleged tipper settled before trial without admitting or denying any allegations in the Complaint. The SEC's insider trading claim relied on inferences drawn from the existence of conversations between the defendants, who are brothers-in-law, coinciding with option purchases as a company merger closing approached. The SEC also emphasized inferences drawn from changes in trading patterns after the alleged exchange of material nonpublic information, noting that the defendant had never taken a bullish position on the company before the alleged communications.
Commentary
This directed verdict should serve as a sobering reminder to the SEC staff that suspicions, inferences and even deviations from past habits, without more, will not sustain an insider trading claim - the current darling of the enforcement program.
Primary Sources
- Order of Dismissal in SEC v. Christopher Clark, et al.
- Federal Rules of Civil Procedure Rule 50: Judgment as a Matter of Law in a Jury Trial
- S. Securities and Exchange Commission v. Christopher Clark, et al.: Complaint
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