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By Greg Kramer and Stephen M. Schultz, Kleinberg, Kaplan, Wolff & Cohen, P.C.
Could a trade based on intuition and observing a chance encounter between a business contact and an executive of a publicly listed company at a charity event result in insider trading charges? The Securities and Exchange Commission's recent enforcement action against Richard Bruce Moore suggests that the answer to that question is yes. The SEC's complaint against Moore, a former investment banker with Canadian Imperial Bank of Commerce (“CIBC”) in Toronto, underscores the SEC's expansive views on materiality and the existence of a fiduciary or fiduciary-like duty in insider trading cases. The SEC accused Moore of using material, non-public information to trade ahead of the 2010 takeover of Tomkins Plc by the Canadian Pension Plan Investment Board (“CPPIB”) and a private equity fund.
The SEC filed a settled insider trading civil action against Moore on April 16, 2013. Without admitting or denying the SEC's substantive allegations, Moore consented to the entry of a proposed final judgment enjoining him from future violations of Section 10(b) of the Securities Exchange Act of 1934, as amended and Rule 10b-5 promulgated thereunder and agreed to pay approximately $350,000 in disgorgement of profits and penalties. The final judgment was entered by the district court for the Southern District of New York on April 26, 2013. Moore also agreed to an SEC administrative order that will bar him from the securities industry or participating in penny stock offerings.
Neither Moore nor CIBC was involved in the takeover of Tomkins. However, through Moore's employment at CIBC, he knew the managing director at CPPIB (the “Managing Director”) who was running the Tomkins deal. Moore had worked with the Managing Director on other transactions where CPPIB was a CIBC client in the past. Moore and the Managing Director also socialized together. The relevant facts are as follows:
According to the SEC, the information described above led Moore to conclude that the Managing Director was likely working on a transaction involving Tomkins. In its complaint, the SEC claimed that the different pieces of information that Moore gleaned from his conversations with and observations of the Managing Director were material and non-public and that he converted that information to his own use in breach of a duty that he owed to CIBC. Had the Moore case been litigated instead of settled, it would not be unreasonable to expect that materiality and breach of duty would have been significant issues of contention.
Here is what may be taken away from the Moore case:
Stephen M. Schultz is a partner in the corporate and securities practice areas of Kleinberg, Kaplan, Wolff & Cohen, P.C. He focuses on counseling clients in the investment management and financial services businesses. He can be reached at email@example.com or 212-880-9840.
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