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Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Thursday, September 27, 2012

SEC Charges Former Analyst with Tipping Friend about Mergers

The SEC charged a former analyst at a Boston-based investment bank with illegally tipping a close friend with confidential information about clients involved in impending mergers and acquisitions.  According to the SEC, Jauyo “Jason” Lee, who worked in the San Francisco office of Leerink Swann LLC, gleaned sensitive nonpublic information about the deals from unsuspecting co-workers involved with those clients and by reviewing various internal documents about the transactions, which involved medical device companies. Lee tipped his longtime college friend Victor Chen of Sunnyvale, Calif., with the confidential information, and Chen traded heavily on the basis of the nonpublic details that Lee had a duty to protect. Chen made more than $600,000 in illicit profits, which was a 237 percent return on his initial investment. Bank records reveal a pattern of large cash withdrawals by Lee followed by large cash deposits by Chen, who then used the money for the insider trading.

According to the SEC’s complaint filed in U.S. District Court for the Northern District of California, Lee was first privy to information about Leerink’s client Syneron Medical Ltd., which was negotiating an acquisition of Candela Corporation in 2009. He later learned that Leerink’s client Somanetics Corporation was in the process of being acquired by Covidien plc. in 2010. As Lee collected nonpublic details about each of the deals, he communicated with Chen repeatedly and exchanged dozens of phone calls and text messages. Some of the calls took place from Lee’s office telephone at Leerink. Lee had a duty to preserve the confidentiality of the information that he received in the course of his employment at Leerink.

The SEC alleges that Lee and Chen violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. The SEC is seeking disgorgement of ill-gotten gains with prejudgment interest, financial penalties, and permanent injunctions against Lee and Chen.

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