Reported by Frederick L. Block, Kelly L. Gibson, Susan D. Resley, Daniel B. Tehrani, Justin D. Weitz, Alyse (“Ali”) J. Rivett, and Michelle M. Arra

The SEC filed four separate complaints in the US District Court for the Southern District of New York alleging insider trading by 13 defendants. Simultaneously, the US Attorney’s Office for the Southern District of New York announced criminal charges in four criminal actions arising from the same conduct. According to the DOJ, the defendants in these cases collectively made more than $30 million dollars from their illegal trading.

The cases themselves are distinct, but all have elements of traditional tipper-tippee relationships involving friends and family members. Notably, the defendants include public company executives and board members, a brokerage firm executive, a chief compliance officer (CCO), and a network of individuals including a police chief. 

CASES REINFORCE GOVERNMENT’S FOCUS ON INSIDER TRADING 

As we’ve previously discussed with respect to SEC enforcement developments for public companies, the SEC has shown a continued focus on insider trading and brought a number of cases against senior executives, several of whom were public company officers, in 2022 and the first part of 2023. The DOJ has similarly demonstrated an interest in prosecuting insider trading against high-level executives. We’ve also seen a notable increase in sweep investigations, particularly with respect to registered entities, in part as a way for the SEC to proactively highlight and deter recurring issues. 

Filing these insider trading cases on the same day (akin to a sweep), and in coordination with the unsealing of the DOJ’s criminal indictments, certainly has a more pronounced effect than filing individual cases throughout the year. The same-day public statements by the SEC’s Director of Enforcement Gurbir Grewal and the US Attorney for the Southern District of New York Damian Williams [2]send a clear message that the government remains committed to pursuing insider trading charges wherever they may exist (and sweeps and coordinated actions where appropriate). 

In particular, these actions also reinforce that the SEC and DOJ are continuing to prioritize and enhance their use of data analytics and technology to identify unusual and suspicious trading patterns for potential insider trading actions. The SEC’s use of data analytics has led to several risk-based “sweeps.” 

Indeed, Director Grewal specifically referenced the Commission’s use of “data analytics initiatives” and “leveraging all the tools at [its] disposal . . . to investigate [] abusive trading practices” in the press release announcing the four insider trading actions. Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division has similarly lauded the DOJ’s use of data analytics to secure criminal charges, saying that the Department has “embraced the use of data to proactively identify and investigate fraud as we continue to ensure that ordinary investors are on an equal playing field with corporate insiders.”

These cases also target “gatekeepers,” whom the SEC has previously described as those individuals who “are often the first lines of defense against misconduct.” Here, those named as defendants include a CCO, a board member, a veteran registered broker-dealer, and a police chief—all gatekeepers in various public sectors. 

In the last year, we’ve seen the SEC bring a number of enforcement actions against individuals and gatekeepers, including auditors, attorneys, and a CCO, with failing to live up to their heightened trust and responsibility. We expect to see even more, and these cases further reinforce the SEC’s focus on gatekeepers and ensuring that those who have been given a heightened level of trust and responsibility are being held accountable for their actions.

Read full report: https://www.morganlewis.com/pubs/2023/07/us-government-continues-to-crack-down-on-insider-trading-with-four-coordinated-actions