Fei Yan, a post-doctoral associate at a major research university, was arrested on July 12 and charged with insider trading in connection with transactions in options on the stock of Stillwater Mining Company during November and December 2016, when he allegedly knew through misappropriated, nonpublic information that the firm was subject to takeover negotiations by Sibanye Gold Limited. He acquired this non-public information, according to a complaint approved by the US Attorneys’ Office located in New York City, through conversations with his spouse who, at the time, was an associate at a law firm that had been retained by Stillwater to handle relevant legal matters. Shortly after conversations with his wife, who worked on the Stillwater potential takeover for her employer, Mr. Yan purchased relevant options, which he sold after the announcement of Stillwater’s acquisition on December 9. Moreover, many of Mr. Yan’s purchases of Stillwater options followed his scrupulous research on the Internet regarding how the Securities and Exchange Commission detects unusual trades and his review of related articles, including “U.S. Insider Trading Enforcement Goes Global” and “Want to Commit Insider Trading? Here’s How Not to Do It.” The complaint alleged that Mr. Yan purportedly traded the relevant options in an account in the name of his mother – who lived in China. In connection with this matter, Mr. Yan was charged with two counts of securities fraud and one count of wire fraud. If convicted, Mr. Yan could be subject to substantial imprisonment and fines. Mr. Yan was also named in an SEC civil complaint related to the identical matter, as well as to transactions in options in Mattress Firm Holding Corp. The SEC charged that Mr. Yan purchased options on Mattress Firm stock based on misappropriated information also obtained through his spouse as a result of work at her law firm regarding’s Mattress’s Firm’s potential acquisition by Steinhoff International Holdings N.V. in 2016.
Legal Weeds: Two recent enforcement actions by the Commodity Futures Trading Commission also charged persons with insider trading for misappropriating trading information. In the first action brought in 2015, the CFTC alleged that Arya Motazedi, a gasoline trader for an unnamed large, publicly traded corporation, misappropriated trading information of his employer for his own benefit. In the second action, CFTC brought and settled charges against Jon Ruggles, a former trader for Delta Airlines, for trading accounts in his wife’s name based on his knowledge of trades he anticipated placing for his employer. Both actions were grounded in a provision of law under the Dodd-Frank Wall Street Reform and Consumer Protection Act and a CFTC rule that prohibit use of a manipulative or deceptive device or contrivance in connection with futures or swaps trading. (Click here to access Commodity Exchange Act Section 6(c)(1), US Code § 9(1), and here to access CFTC Rule 180.1. Click here for background on these CFTC enforcement actions in the article “Ex-Airline Employee Sued by CFTC for Insider Trading of Futures Based on Misappropriated Information” in the October 2, 2016 edition of Bridging the Week.)
Hard to Believe: If the allegations in these cases are proven true, it will demonstrate that studying too hard may sometimes not be such a great thing!