Fenwick & West securities enforcement co-chair Mike Dicke was quoted in a Law360 article regarding the U.S. Securities and Exchange Commission’s recent decision not to prosecute an insider trading case in its in-house court following a landmark Second Circuit decision.
The SEC case targeted Jordan Peixoto, a former Deloitte LLP analyst, claiming he illegally received inside information regarding a $1 billion short-selling campaign against Herbalife.
The SEC decided to drop its case days after the Second Circuit, in overturning convictions in another celebrated insider trading case, significantly narrowed the definition of what constitutes criminal insider trading. Specifically, the court narrowed what constitutes a personal benefit.
In the wake of that decision, attorneys speculated that the SEC felt its chances of prevailing were greatly diminished, and dropped the case.
Observers noted that what was deemed a benefit of the SEC trying the case in its in-house court – namely, its efficiency – may have actually dealt the case a fatal blow by not allowing the commission sufficient time to amend its complaint.
Dicke said, “That’s one problem with administrative proceedings: Once you’ve filed, you’re pretty much locked in.”
On the other hand, Dicke elaborated, in federal court, the case might not head to trial for two to three years, giving the SEC more leeway to adjust its complaint when either facts, or the law, changes.
“It doesn’t mean the SEC made any mistakes in their choice of forum,” Dicke said. “They pled what they thought was the standard.”
More information about the decision in Newman that sharply narrowed the reach of insider trading law is available through Dicke's article on the subject.