SEC Attempts to Expand Insider Trading Liability

They continue to attempt to expand insider trading prohibitions and to do so by bringing lawsuits based on new theories rather than by legislation.

The SEC‘s lawsuit against Matthew Panuwat, a former executive at Medivation Inc., centers on allegations of insider trading termed “shadow trading.” This case, unfolding in San Francisco, is drawing significant attention from the securities trading and legal communities due to its implications for the scope of insider trading laws and the SEC’s enforcement authority.

The SEC’s argument is that Panuwat used allegedly confidential information about Pfizer Inc.’s impending acquisition of Medivation, his employer, to make a profitable trade on Incyte Corp., a competitor of Medivation. Within minutes of learning about the potential deal, Panuwat invested heavily in call options for Incyte, anticipating that Medivation’s removal from the market would render Incyte a more attractive acquisition target, thereby boosting its stock value.

The problem with this theory is that his trade had nothing to do with the allegedly confidential information he received. The information was that Pfizer was going to buy Medivation. Panuwat bought a competitor, presumably because he believed there would be a consolidation in the industry.

The SEC’s portrayal of Panuwat’s actions and its quotes in the press claim that this is a clear-cut case of using insider information for personal gain, akin to betting on a sure outcome. However, this case tests the boundaries of insider trading definitions, particularly because Panuwat traded stocks of a company that he had no direct insider information about, leveraging his specialized industry knowledge to anticipate market reactions to corporate news instead.

The current “misappropriation theory” of insider trading, which expanded the law of insider trading without any rule or legislation, states that trading on information in breach of a duty to his employer and trading on that information in their interest rather than in the interest of the party to whom the duty is owed, violates the law.

Here, the alleged breach of fiduciary duty – using his employer’s supposedly confidential email about an acquisition of a different company – is not in any way, shape, or form connected to his purchase of a security.

The core of insider trading is using confidential information in connection ith the purchase or sale of a security. Here, the confidential information had nothing to do with the purchased security.

This trial challenges traditional understandings of insider trading and reflects broader discussions about the SEC’s regulatory reach under the leadership of Chair Gary Gensler and Enforcement Chief Gurbir Grewal. Their tenure has seen the SEC expand its enforcement activities into new and sometimes controversial areas, including corporate culture and the cryptocurrency sector.

The outcome of this case may have far-reaching implications for what constitutes insider trading, especially in industries where knowledge about one company can significantly impact the stock of another.


Mark Astarita is a well-known securities attorney who represents parties in SEC investigations and enforcement proceedings. Mr. Astarita and one of his law partners represented the defendant in SEC vs. Materia, the seminal insider trading case that first used the misappropriation theory, which was not an accepted theory of liability at the time.

Securities Attorney at Sallah Astarita & Cox | 212-509-6544 | | Website | + posts

Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page -, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.

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