Show Me the Money
‘Wall Street’ is often viewed as a prototypical film about the excesses of the 1980s. Released in 1987, it stars Charlie Sheen as Bud Fox, a young stockbroker hoping to work with his idol, Gordon Gekko, a wealthy, unscrupulous corporate raider played by Michael Douglas. Gekko’s mantra is, “greed, for lack of a better word, is good.”
Fox lands a job with Gekko after helping him invest in an airline after receiving information about the company from his father, Lou (portrayed by Sheen’s real dad, Martin), who is head of the airline’s maintenance workers’ union. Gordon and Bud cash in, and the tycoon introduces his protégé to the opulent ‘80s lifestyle, including a penthouse apartment, fine dining and limo rides.
Like a Greek tragedy, fortune is fleeting for Bud. Gordon betrays him to make a quick buck, teaching him that his only loyalty should be to profits. Bud eventually turns the tables on Gordon, but is quickly arrested by the FBI for insider trading.
Insider trading has plagued Wall Street since the inception of the stock market. Even beloved entrepreneur Martha Stewart was accused of insider trading after she sold four thousand shares of ImClone a day before the firm’s stock price plummeted.
Matthew Panuwat is one of the latest of the U.S. Securities and Exchange Commission’s targets for insider trading. The unusual issue about Panuwat’s case, however, is that he’s not technically an insider.
Panuwat, a former Merrill Lynch investment banker, took a job as an executive at Medivation, a biotech company. The SEC alleges that in 2016, Panuwat learned that pharma juggernaut Pfizer was buying his company. In response, he purchased options tied to the shares of Incyte, a rival drugmaker, gambling that its stock would rise after the market learned of the Pfizer buyout.
Panuwat was right, as he made $120,000 on the investment. But, like Bud Fox, his trades caught the attention of the SEC.
The Securities Exchange Act of 1934 governs securities fraud. Section 10b-5 of the Act prohibits insider trading, which involves corporate officers and directors or other insider employees from using confidential corporate information to reap a profit (or avoid a loss) by trading in the company’s stock. It also prohibits “tipping” confidential information to third parties.
An “insider” is an officer, director, 10% stockholder, employee or other person who possesses inside information because of a relationship with the company or with an officer, director or principal stockholder of the company. It also includes anyone who receives this information from an insider and uses it to buy or sell the company’s stock.
Panuwat, however, didn’t buy his company’s stock, nor did he have inside information about the company he invested in. Therefore, his is the first known case involving “shadow insider trading,” which describes executives making well-timed bets in the shares of other companies.
The SEC insists, though, that two facts about Panuwat’s trading prove it was illegal. First, his employer, Medivation, had a policy that forbade trading other companies’ shares when employees had material nonpublic information about Medivation. Second, Panuwat traded on his work computer just seven minutes after he allegedly learned that Pfizer was buying Medivation.
The case goes to trial this spring. If Panuwat is convicted, the SEC is asking that he be fined an amount three times Panuwat’s $120,000 gain. It also wants to bar him from serving as an officer or director of a public company in the future.
Apparently, the SEC feels that sometimes, greed, for lack of a better word, is bad.
Reg P. Wydeven
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