M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Tuesday, August 16, 2011

Another school year, more lessons for young lawyers

Apologies for the relatively long hiatus.  Blogging is more work than it seems at times and sometimes one needs a little break.  In any event, the current administration is continuing to teach lessons to the current generation of idiot inside traders.  Law students -- there are real life lessons to be learned from the experience of a young woman who interned at Walt Disney in 2009.   

Lesson number one:  Don't share material non-public information with your no-goodnik boyfriend. Why?  Isn't it obvious by now?  Cause he probably doesn't love you as much as he loves money.  

The allegations that the SEC is making against Toby Scammell are really just head-shaking.  One wonders not just where the moral compass is, but what happened to common sense.  

First, Scammell's girl friend was working as an "extern" at Walt Disney during the summer of 2009.  She was assigned to work on the deal team that was taking the lead on the acquisition of Marvel.  For her, this was apparently an important career opportunity.  She shared her good fortune with her boyfriend of two years, Scammell.  She discussed with him whether or not she should delay applying to business school so she could include the Marvel acquisition experience in her application.  She discussed with him the timing of the deal - because it apparently impacted on plans they had to attend a wedding together.  She let him access her Blackberry where she kept work-related e-mails, etc. 

Of course, it turns out that Scammell was less than a loyal boyfriend.  The SEC alleges that Scammell made over 3000% profit on short term call options in Marvel that he purchased on the basis of the inside information he misppropriated from his girlfriend.   Not only that, but his purchases of short term call options swamped the market - making it more than a little obvious to investigators that something was up:

Apparently, Scammell had only purchased options once before -- long-term Google call options in which he lost 99% of his investment.  So, his purchases of short term Marvel options was highly unusual.

Of course, with all insider trading prosecutions, the real challenge for the government is scienter.  Well, it appears that Scammell went out his way to help the government with its case:


Googling "insider trading"?!  C'mon.

Why does it matter that he didn't mention his trades and profits to his brother?  Oh, I forgot to mention that Scammell was managing the finances of his brother who was serving Iraq.  The SEC alleges that Scammell was hard up on funds, so he accessed his brother's account to get cash to fund his option purchases.  

I'm sure this guy was planning on telling his brother about the profits ... at some point.  In fact, Scammell's brother didn't learn about the profits Scammell made with his funds until the SEC called him months later to ask him about it. 

There are real lessons for law students and young associates in this story.  First, discretion is the watch-word.  Just because you happen to love your boyfriend, doesn't mean that he won't trade on your inside information.  Don't believe me?  Just ask Scammell's girlfriend.  

It's no way to start a professional career.

Here's the SEC complaint.



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Hi Brian, can you comment on whether it would have made any difference if they were married? I think that plenty of lawyers tell their spouses what they're working on for 18 hours per day... of course a spouse is not incentivised to do something that could prevent future income though.

Posted by: Anon | Aug 16, 2011 4:57:02 PM

Scammell was not an insider in respect of either corporation involved in the takeover, and neither corporation was harmed by his trading. So to get around this minor problem, the SEC alleges that he breached a "duty of trust or confidence" that they claim he owed his girlfriend! So the SEC's role is now to enforce fidelity between dating boys and girls. There is no evidence that she disclosed the name of the target to him, so his identifying Marvel may have been a lucky guess. His researching insider trading may have led him to believe, probably correctly, that his activities were not insider trading. Maybe the counterparties to his option trades have grounds to complain about his trading, but that is a different matter.

Posted by: Errol Danziger | Aug 17, 2011 2:34:26 AM

From what I've read in the press, the boyfriend is fighting this case. He says he has a long history of speculative trades, this was one of them, he offers alternative reasons why he picked Disney at this time, and the SEC cannot and does not attempt to allege that the girlfriend specifically told him anything. Instead, the SEC speculates that because she knew something, and he traded, she must have told him something or he must have stolen the information from her. So I would not hold this case up as an example of SEC vigilance in prosecuting insider trading; it could just as easily be an example of SEC overreaching and incompetence.

Posted by: Connecticut Lawyer | Aug 22, 2011 4:36:09 PM

CT Lawyer: That may be true. And it certainly wouldn't be the first example of over-reach by SEC. As you note, Mr. Scammell is putting up a very vocal defense. You can find it here at www.secfail.com. Among his alternate reasons for picking Marvel was that he was working on an unrelated consulting project for Disney for which he add access to industry and analyst reports and Marvel came to his attention. Anyway, he says, it was a "known fact" that Disney had been trying to buy Marvel for years.

Posted by: bjmq | Aug 22, 2011 7:09:54 PM

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