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A
federal jury in Philadelphia agreed with the U.S. Securities and
Exchange Commission (SEC) that information used by the Capital
One ex-employee, Nan Huang, to trade in shares of consumer
retail companies ahead of sales and earnings reports was
"material."
The data gave Huang, who earned nearly $1.5 million from the
trades, a "significant advantage" over the investing public, SEC
lawyers said.
The verdict marked a victory for the SEC, which has suffered a
number of trial losses in insider trading cases during recent
years, most notably the 2013 verdict clearing billionaire Mark
Cuban.
The SEC won 23 of 25 trials involving various securities
violations during its 2015 fiscal year. In September, however, a
former Wells Fargo & Co trader was cleared of insider trading
charges.
Huang did not deny using Capital One's non-public information,
which the company's policies forbid. The case hinged on whether
the sales data was "material," or gave Huang a significant edge
compared to the scope of other information available to the
investing public.
The sales information met that definition because, in part,
Huang used it to make "calculations that allowed him to project
and predict" broader company sales patterns, said SEC lawyer
David Axelrod in closing arguments on Wednesday.
"Obviously, we are disappointed in the verdict," said Gregory
Morvillo, Huang's New York-based lawyer. "We have a fundamental
disagreement with the SEC as to materiality, not just as
applicable to the facts in this case, but as a matter of law,"
Morvillo said in an email to Reuters.
Penalties for Huang, who did not testify, were not immediately
clear, but are likely to include a fine and requirement that he
return wrongfully earned profits. Lawyers debated on Wednesday
before U.S. District Judge Mark Kearney how to calculate those
profits. Kearney will rule on penalties in a separate order.
The SEC sued colleagues Nan Huang and Bonan Huang in January
2015 alleging they made hundreds, if not thousands, of keyword
searches on their company's private database for sales data on
at least 170 publicly traded companies from November 2013 to
January 2015.
According to the SEC, the analysts, both Virginia residents when
they worked for Capital One used the information to trade in
accounts at numerous brokerages ahead of quarterly sales
announcements by the companies.
The Huangs, who are not related, began with a $147,000
investment and together made more than $2.8 million from the
trades, a three-year return of 1,819 percent, the SEC said.
Bonan Huang settled with the SEC last month, agreeing to more
than $4.7 million in penalties and other payments without
admitting or denying the allegations.
Both Huangs, who investigated credit card frauds for Capital
One, are Chinese nationals. They fled to China after Capital One
fired them last year.
(Reporting by Suzanne Barlyn; Editing by Bill Rigby, Bernard
Orr)
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