M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Sunday, September 19, 2010

Lessons worth learning

By now it should be obvious to most readers that one of my target audiences when I write this blog is mostly recent law grads still getting their footing as young associates.  I think it's useful to reinforce a couple of lessons that they may not have thought much about while in law school, but once you get out in practice confront you every day.  First among them for transactional lawyers - particularly those new to the practice who are, often for the first time, handling confidential client information - is insider trading.  As any transactional lawyer will tell you, when you work on deals, you're constantly handling inside information.  If you want to have a long career you have to take that seriously.  That's why I will often highlight "idiot lawyers" and others who ruin their careers for small amounts of cash, or for fleeting personal glorification.  Some of these people deserve what they get, others ... well ... others could have been you.   These are lessons worth learning.

All that said, the latest addition to the pantheon of people who should have known better, but thought maybe nobody would notice, is Dr. Bobby Khan. The SEC recently filed a civil complaint against Khan alleging that Khan traded on material nonpublic information that he acquired from a long time business associate and friend.  The associate was an officer at Sciele who shared information with Khan about a pending transaction in which Sciele would be acquired by a Japanese pharmaceutical firm.  The SEC alleges that Khan received that information after having assured his associate he would keep it confidential.  In fact, the SEC alleges that after having learned about the acquisition from his associate over dinner, Khan sent the following email:

"Had a great dinner with you on Friday and I wish all the best with the negotiations on the potential buyout of Sciele. Of course, I will keep it confidential."

Of course, he will.  But, you know how the story ends.  Following his receipt of this information, Khan allegedly opened an online brokerage account, his first since 2003 and then transferred approximately one-third of his then liquid net worth into that account in order to purchase about 4,000 shares of Sciele stock only a few days before public announcement Sciele's acquisition on September 1, 2008.  Following the tender offer announcement, Khan sold all of his Sciele shares in October 2008, making $45,000 in profits.  

 I'll give you three guesses where the SEC got the e-mail to the officer of Sciele.  It probably wasn't Khan.  I'm sure that when the SEC starting putting the dots together on who Khan was it took them about three minutes to realize that the Sciele officer was on the advisory board of Khan's startup.    In fact, I wouldn't be surprised if the Sciele officer gave up Khan right away.  

The good news for Khan is that he is a medical doctor and not a lawyer.  Presumably he will still have a career after this is over. 



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