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Former Capital One analyst Nan Huang lost his bid to overturn penalties stemming from his use of the company’s confidential database to access customer information for insider trading purposes ( SEC v. Huang , 3d Cir., No. 16-2390, 4/10/17 ).
The nonpublic data, which Huang aggregated and used to predict revenues, was important enough to support insider trading liability, Judge Patty Shwartz of the U.S. Court of Appeals for the Third Circuit affirmed in a non-precedential opinion.
The customer sales data “was only one piece of the complex and extensive analysis of each company that he conducted,” Huang’s lawyer Gregory Morvillo, Morvillo LLP, New York, told Bloomberg BNA in a telephone conversation. He said the firm is analyzing the opinion to determine whether it’s appropriate for U.S. Supreme Court review.
Morvillo also represented former hedge fund executive Anthony Chiasson in United States v. Newman, a Second Circuit decision that made it harder for the government to bring insider trading cases.
Nan Huang and his co-defendant Bonan Huang were data analysts tasked with investigating fraudulent credit card activity against the company and retailers that used its network. As part of its business, the company maintained a large database of its customers’ credit card activity. Allegedly, the duo searched the database for periodic sales information about particular retailers to determine if sales were up or down. The defendants then used the information to trade securities before the retailers’ financial results were publicly announced. They made more than $2.8 million in unlawful profits, the Securities and Exchange Commission said.
Bonan Huang agreed to pay approximately $4.7 million in disgorgement and penalties to settle the SEC’s allegations.
Nan Huang ultimately was found liable by a jury in the U.S. District Court for the Eastern District of Pennsylvania and ordered to pay $13.5 million in penalties and disgorgement.
On appeal, Nan argued that the SEC didn’t show that the Capital One nonpublic data he traded with was material—which is required to find insider trading liability. The Third Circuit disagreed, saying the data allowed Nan to make revenue projections approximately one month before the companies publicly announced their actual revenues. As such, Nan had “early and nonpublic” insight as to whether the companies were likely to under- or over-perform expert predictions and thus whether their stocks would rise or fall after the announcements, the court said.
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To view the opinion, visit: http://www.bloomberglaw.com/public/document/SEC_v_Bonan_Huang_No_162390_2017_BL_117253_3d_Cir_Apr_10_2017_Cou
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