On September 30, 2014, the SEC brought separate enforcement actions against Filip Szymik and Jordan Peixoto in connection with alleged insider trading transactions involving the securities of Herbalife Ltd. (“Herbalife”). According to the orders, Szymik’s roommate (the “Analyst”) was employed in 2012 at Pershing Square Asset Management, L.P., a hedge fund manager headed by well-known activist investor William Ackman. The SEC alleges the Analyst, in violation of Pershing’s confidentiality policy, told Szymik about an upcoming public presentation (the “Pershing Presentation”), at which Pershing would discuss its negative view of Herbalife. The SEC also alleges that, in a series of communications prior to December 19, 2012, Syzmik, in breach of his duty of trust and confidence to the Analyst, passed on the information to his friend Peixoto. Prior to the Pershing Presentation, which took place on December 20, 2012 and included, among other things, allegations that Herbalife was operating an illicit pyramid scheme, Peixoto purchased a number of Herbalife put options, from which the SEC alleges Peixoto ultimately obtained $47,100 in actual profits based on the decline in the share price of Herbalife stock during the days immediately following the Pershing Presentation. Neither Peixoto nor Szymik are alleged to have had any nonpublic information about the financial condition of Herbalife. Rather the SEC asserts that “all information concerning Pershing’s Herbalife research – including its negative view of Herbalife, its thesis that Herbalife was operating as an illicit pyramid scheme, its short position in Herbalife stock, and the timing of its disclosure of that information – constituted material nonpublic information.”

Szymik agreed to a settlement order which requires him to pay $47,100 and to cease and desist from further violations. Peixoto, a Canadian citizen, is defending the enforcement action brought against him, and has countersued the SEC, alleging, among other things, that the administrative proceeding brought against him violates Article II of the United States’ Constitution with respect to executive power.

These enforcement actions indicate that the SEC considers information relating to an outside investor’s opinion of a security formed on the basis of public information to be material, non-public information. In addition, the SEC decision to seek civil penalties against Peixoto in an administrative proceeding rather than in a federal court action is an example of the recent trend in which the SEC has instituted enforcement cases as administrative proceedings.