July 20, 2011
Is this unlawful?
According to this story from Bloomberg, the SEC
sued a Michigan man, claiming he traded on information he learned from a houseguest about the impending acquisition of Brink’s Home Security
investment banker for Tyco International Inc., the buyer, inadvertently left behind a draft presentation on the deal.
According to the SEC, months later, the homeowner discovered the draft. Another month or so after the discovery, the homeowner intuited from changes in the banker’s travel schedule that the transaction was imminent.
According to the SEC, the homeowner profited from trading in Brink’s stock after the public announcement of the deal caused its price to jump 30 percent.
The homeowner's lawyer said his client has settled the case and will turn over his profits and pay a fine.
Obviously the facts are incomplete, but I wonder if Professor Bainbridge would have advised the homeowner to fight the case.
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Seems like a stretch. The facts don't really appear to offer much color to the concept of "a relationship of trust and confidence." Seems closer to a Barry Switzer-like case ...
Posted by: bjmq | Jul 21, 2011 5:39:38 AM
I just read the complaint and I agree that this is a stretch. The complaint says, conclusorily, that "Doyle breached his duty of trust and confidence to the Banker" and that "Defendant's purchases of Brink's securities breached a legitimate expectation of confidentiality held by the Banker." The complaint seems to assume that there is a relation of trust and confidence between a host and houseguest. The complaint did not allege that Doyle snooped through the houseguest's papers, like the father of that law firm associate several months ago. Instead, Doyle allegedly "misappropriated" the information by discovering a draft presentation months after the houseguest left. Doyle may have been too quick to settle, but the fact that he initially hesitated in exercising his call options suggests that he may have had second thoughts and felt guilty about his actions, even if they may not quite have been insider trading.
Posted by: Vic | Jul 21, 2011 9:10:41 AM
I too am befuddled at this settlement. Are we missing key facts?
Posted by: BL | Jul 26, 2011 7:41:52 AM