In SEC v. Obus, Docket No. 10-4749 (2nd Cir. Decided Sept. 6, 2012) the Circuit Court found that the defendants could be held liable for insider trading despite the fact that the company concluded they had not breached any duty. In SEC v. Knight, 2:11-cv-00973 (D. Ariz. Filed May 18, 2011) the SEC claimed that the defendant executive engaged in insider trading when selling company shares in advance of a disappointing earnings release where the executive knew that fact but traded in compliance with company procedures and apparently had its approval. In contrast, in SEC v. Powell, Civil Action No. 6;11-civ-00161 (W.D. Tx. Opinion dated Oct. 11, 2012) the effort of the Commission to hold an executive who purchased company shares the day before it began repurchasing them was rejected based on the fact that the company had previously disclosed the repurchase and had no obligation to disclose the initial purchase date.

The SEC’s complaint centers on the March 2008 repurchase of its shares by First Cash Financial Services, Inc. The company is a specialty retailer and provider of consumer financials services, operating pawn shops in the U.S. and Mexico. The defendant is Phillip Powell, who helped take the company public while serving as president in 1991. From 1992 through 2004 he acted as CEO and Chairman of the board. In late 2004 Mr. Powell stepped down as CEO but continued to serve as Chairman. At that time he entered into a formal consulting agreement with the company.

On November 6, 2007 the Board of First Cash authorized a stock repurchase program for up to one million shares. The program was announced in a press release that day. This was not the first repurchase by the company. First Cash had almost continuously repurchased its shares since 2004. It announced the completion of the 2004 repurchase in 2006 when, simultaneously, it announced a second. First Cash announced the completion of the second at the same time it announced its third, the 2007 repurchase.

The 2007 plan was not immediately implemented. In January 2008 the company established a due diligence data room. That room remained open until late February 2008. Outside counsel to the firm recommended that the repurchase begin at that point.

Subsequently, on March 7, 2008 the Board approved the retention of JP Morgan Securities, Inc. to execute the plan, as reflected in a Consent to Action by the Board which Mr. Powell received. Four days later the brokerage firm furnished the company with a Rule 10b-5-1 plan.

The repurchase began the next day. No announcement of that fact was made or required. At the time the company and counsel concluded that the firm was not in possession of any material non-public information. The board agreed that during the repurchase no insider would engage in transactions in First Cash stock. Mr. Powell was aware of these facts.

The day before the repurchase Mr. Powell as investment manager for Myloe Max, L.P. purchase 100,000 shares of company stock for $807,000. In making the purchase the executive consulted with his daughter who was to take a more active role in the firm and his estate planning attorney. Since the data room had closed, and in view of outside counsel’s determination and that of the board, Mr. Powell understood he could purchase shares at that time.

On March 14, 2008, after the close of the market, First Cash issued a press release. The next day its stock closed up at $9.21 from $8.22. Myloe Max did not sell its shares.

The Commission’s complaint alleged violations of Exchange Act Sections 10(b) and 16(a). The Commission and Mr. Powell moved for summary judgment. The Court denied the Commission’s motion and granted in part Mr. Powell’s.

First, the court found that the information about the repurchase program was already in the public domain. There was noting that obligated the company to announce the date the actual purchasing would begin. Indeed, the CEO of the company and its outside counsel concluded that the information was not material as they advised the board of directors.

Second, Mr. Powell did not possess the requisite scienter. In this regard the court concluded that “Based upon the information supplied by the CEO, including advice from outside counsel, Powell reasonably believed that his purchase was permissible after the closing of the data room and prior to the actual date the repurchase began. Also supporting Powell’s lack of intent is the fact that he did not attempt to benefit from the resale of the stock – the stock is still in possession of Myloe Max.”