U.S. Securities and Exchange Commission building in Washington, D.C. Jan. 5, 2019. 'Shadow Trading' and 'SEC v. Panuwat': An Expansive Trend in Insider Trading Enforcement?
Judge Orrick's decision in 'Panuwat' may herald a further widening of the insider trading landscape.
March 02, 2022 at 11:00 AM
15 minute read
On Jan. 14, 2022, the U.S. District Court for the Northern District of California denied a motion to dismiss an SEC enforcement action rooted in a novel "shadow trading" theory of insider trading. In SEC v. Panuwat, the SEC alleged that Matthew Panuwat used confidential information regarding the acquisition of Medivation, his employer, to buy stock options in another industry participant, Incyte. The court ruled that the SEC alleged facts sufficient to state a claim under the "misappropriation" theory of insider trading for violations of §10(b) of the 1934 Securities Exchange Act and SEC Rule 10b-5 promulgated thereunder. See Dkt. 26 (MTD Decision). Given the unique theory of liability underpinning the SEC's complaint, the decision may signal a noteworthy expansion in insider trading enforcement.
Insider Trading: A Brief Background
In the absence of a federal statute, insider trading law has developed through judicial interpretation of §10(b) and Rule 10b-5. Insider trading prosecutions generally proceed under one of two theories of liability: the "classical" theory or the "misappropriation" theory.
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