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Last year, a Special Committee of the Board of Directors of Equifax announced that it had found no cases of insider trading among executives. But the SEC isn’t giving up quite so easily; it has filed a compliant against a lower ranking executive (not covered in the Special Committee’s report).
The SEC’s claim is interesting because the individual in this case (the CIO of a business unit) had not been officially informed of the security breach at the time of his trade. Instead, the SEC alleges that he deduced that there had been a major breach because of a project he was asked to support.
Here’s the sequence of events, according to the SEC complaint:
The SEC’s position is that even though the CIO had not been told that Equifax was breached, he had figured this out (and I can see how the internet searches might support this position); thus, he held material nonpublic information when he exercised his option.
The CIO realized $950,000 on the option exercise and the SEC estimates the loss he avoided at $117,000—that’s just 12% of his proceeds. But he’s now likely to lose a lot more—even if the SEC doesn’t prevail, he’s going to have to spend a lot of money on lawyer fees to fight the claim. And if the SEC prevails or if he settles, there will be penalties. He also lost out on a promotion to global CIO and was forced to resign (the trade violated Equifax’s insider trading compliance policy).
We don’t know all of the implications because the complaint hasn’t been resolved yet. But the complaint speaks to the importance of educating employees on insider trading laws, to protect both the company and employees. A couple of key takeaways:
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