Defendant James Anderson was the founder and an executive officer of Zomax, a publicly traded company. After receiving two internal, nonpublic company reports indicating that Zomax’s third quarter sales would fall significantly short of projections, Anderson liquidated every share of Zomax stock that he and his wife owned over an 8-week period. The day after their final shares were sold, Anderson approved the issuance of a press release announcing that Zomax would not meet its third quarter sales projections.

Anderson was convicted of, among other things, insider trading. On appeal, he argued that the government did not produce sufficient evidence to prove that he committed insider trading in violation of Section 10(b) of the Securities Exchange Act. The Eighth Circuit disagreed.

The Eighth Circuit rejected Anderson’s argument that the Zomax sales reports did not contain material information. Although there was testimony at trial that the sales projection reports at Zomax were often unreliable or inaccurate, the court concluded, on the basis of evidence introduced at trial, that the reports were important to the company and to institutional investors and that a jury could reasonably conclude that the reports constituted “material” information, i.e., information that a reasonable investor would consider important in making investment decisions concerning Zomax stock. The Eighth Circuit also rejected Anderson’s argument that he did not trade “on the basis of” material, nonpublic information because his sales were made pursuant to a preexisting plan to sell stock rather than on any information in the internal reports. Based upon, among other things, the sparsity of evidence supporting Anderson’s claimed preexisting stock sale plan and Anderson’s failure to comply with Zomax’s policy requiring insiders to pre-clear stock sales with the company’s CFO and outside counsel, the Court ruled that the evidence was sufficient for a jury to find that the defendant traded on the basis of nonpublic, material information. (U.S. v. Anderson, 2008 WL 2609206 (8th Cir. July 3, 2008))