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Men Behaving Badly: Insider Trading Bans Apply to Family Members of Executives

May 23, 2014

Posted in Business Litigation, Business Start Ups, Corporate Law, Uncategorized

Greed can end up costing you a lot of money and grief, especially if it motivates you to engage in insider trading. If it also involves your spouse, it won’t help your marriage either.

Two California husbands of business executives learned that the hard way, according to a report by Bloomberg News. They are accused of using nonpublic information they heard their executive wives discuss on the phone about their employers.  These complaints, filed in March, are the latest in a number of Securities and Exchange Commission (SEC) cases involving men who allegedly traded on inside information they learned from spouses over the objections, or without the knowledge, of their wives.

“Family members have a duty to protect and safeguard that information, not to trade on it,” Jina Choi, director of the SEC’s regional office in San Francisco, is quoted as saying in the article.

  • According to the SEC, Ching Hwa Chen of San Jose, overheard his wife, Informatica Corp.’s senior tax director, talk about the company’s quarterly results in June 2012. He learned they might miss their forecasts so Chen bought options and sold the company’s shares short, making $138,000 when the shares dropped after the company did not, in fact, make the forecast. His wife told Chen not to trade in company shares under any circumstances. He did so anyways, hiding the trades from her.  Chen, while denying wrongdoing, agreed to pay $280,523 to settle the case, according to the SEC.
  • In another legal complaint filed in San Jose, the SEC claims Tyrone Hawk of Los Gatos made $151,480 by selling shares of Acme Packet Inc. The agency alleges he bought shares after overhearing his wife, an Oracle Corp. finance manager, discuss the company’s plans to acquire of Acme in February 2013. Hawk agreed to pay $305,614 to resolve the SEC lawsuit without admitting fault.
  • Neither wives were accused of any wrongdoing. The settlements must be approved by a federal judge.

Spouses have a duty of confidence when learning nonpublic information, under SEC rules over insider trading.

  • Last year the SEC sued a Houston man for trading shares of National Semiconductor Corp. after learning about a company acquisition from his wife, whose law firm was providing advice on the transaction. He settled the claims for $60,000 without admitting or denying wrongdoing, according to the SEC.
  • The SEC sued William Marovitz in 2011. He’s the husband of the former Playboy Enterprises Inc. Chief Executive Officer Christie Hefner. He was accused of trading on inside information about the company’s possible sale he learned from his wife. She instructed him not to trade in Playboy shares, but he didn’t listen. He settled with the agency for $168,352.

Insider trading is illegal and although you might think you could earn a lot of money from it, quickly, you could also earn time spent in prison if convicted. If you are being investigated for insider trading, or have been charged with it, contact my office to discuss your situation and the best way to move forward.