SEC Targets Inadvertent Insider Tipping in Cases Involving FDA Approval and Merger

The U.S. Securities and Exchange Commission (SEC) continues to bring insider trading enforcement actions involving inadvertent tips of material nonpublic information (MNPI), including cases where family members traded on confidential details about a drug’s FDA approval and a pending acquisition. Insider trading remains a key area of focus under the current SEC, even as overall enforcement activity has decreased.

Employees with access to MNPI continue to find themselves in situations where they unintentionally disclose or permit sensitive information to make its way to a relative, friend, or romantic partner, and for that recipient to subsequently use the information to trade. In these cases, insiders rarely intend to break the law, yet they can still face severe civil enforcement or criminal charges for insider trading violations, as well as expensive and invasive government investigations and reputational harm. The recent cases highlight the continued risks of leaving your workspace exposed, taking a phone call without headphones, and disclosing confidential information to those with whom you feel most comfortable.

Two of the SEC’s recent insider trading cases involved family members who traded based on an insider’s MNPI. In the first case, a cousin traded based on MNPI he learned from an insider who was part of the sales team at a biopharmaceuticals developer and worked on the marketing rollout of a drug in anticipation of its approval by the FDA. The SEC’s complaint noted that they were “family members who share[d] a close personal relationship” and “communicated several times a week, sometimes multiple times a day—via text message, phone calls, and in-person meetings.” The cousin, a retired trader, began purchasing the company’s securities the same month the insider started working there. The cousin was known among his friends as the “stock guy,” and provided one friend with stock tips, which led to that friend also buying the company’s stock the same month the insider began working there.

Despite the insider’s obligations to maintain confidentiality, she shared MNPI regarding the FDA’s approval with her cousin before the information became public, including over two phone calls in the two days between learning about the FDA’s approval and the public announcement. After each call, her cousin immediately purchased additional stock. The cousin bought approximately 16,480 shares, later selling them for approximately $9,200 in illegal profits. For that modest profit, the cousin was enjoined from violating securities laws and ordered to pay civil monetary relief, with the amount still to be determined. The cousin also pled guilty to one count of securities fraud in the parallel criminal action. The insider was not charged, but she was a significant part of the broader investigation.

The second case involved an acquisition and an insider who worked in the target company’s legal department and lived with one of the defendants, who is a family member. According to the SEC’s complaint, both the insider and family member worked remotely and “had separate workstations a few feet apart,” giving the family member access to the insider’s workspace. Due to the pending acquisition, the insider had to work over the weekend, including participating in highly confidential video calls, and had to cancel plans with the family member. The SEC noted that the insider’s work schedule had previously only involved working normal business hours during the week; the pending acquisition required the insider to work at night and on weekends for the first time since joining the company.