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Insider trading ruling is a warning for executives who get creative

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On a busy day at work in 2016, Matthew Panuwat took a break from his biotech executive job to make a stock trade on his computer. Eight years later, after his federal trial concluded, he stands convicted of a civil insider trading charge. Panuwat’s company, Medivation, was bought in 2016 by Pfizer for $14bn. But the stock he purchased at the time was not that of Medivation. 

Rather he acquired shares of another life sciences company Incyte. Its shares jumped 8 per cent on the Medivation deal. Panuwat quickly cashed out Incyte call options for a $100,000 profit. 

The Feds said that the executive held material non-public information about Incyte — that it would benefit from merger speculation — which he had a duty not to trade on. It was a theory Panuwat rejected as factually false and not even prohibited by existing securities law.

But his conviction should be a warning to companies, investment banks, law firms and the like that allow employees to own stocks even as they have broad knowledge of private, market-moving information.

Panuwat, for his part, says his purchase of Incyte shares had nothing to do with the sale of Medivation, where he was in the middle of deal discussions. He was a former investment banker who closely followed the industry and made a canny trade, in his telling.

The Securities and Exchange Commission insists there is nothing revolutionary about its case. Panuwat signed a confidentiality agreement with his employer which he breached when he traded in Incyte. The agency said Medivation had been defrauded by Panuwat’s actions and that overall confidence in the market had been undermined.

The US does not have a specific insider trading prohibition. Rather it relies on anti-fraud statutes based on theories of theft and misuse of information. What is truly non-public information and who owes a duty to whom then become the central points in a prosecution. Those questions, as Panuwat demonstrates, can be thorny. How certain could he have been that Incyte would rise on the Medivation deal news?

Companies warn their employees about trading in their employer’s shares. But, presumably, those admonitions now need to be broadened to a wider universe. If there is a wave of oil mergers, should wildcatters be kept from buying natural gas drillers? 

Panuwat struggled to explain the unusual coincidence about the timing of his trade. The next case may not be so clear-cut. But executive stock traders have been put on notice.

sujeet.indap@ft.com

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