SEC takes rare court damages in insider-trading case

A federal judge in Northern Virginia on Monday dismissed a civil fraud case against Christopher J Clark, whose bullish and risky trades were spotted by the regulator’s high-powered surveillance database just before his 2017 acquisition. The SEC alleged that Mr. Clark’s brother-in-law, a former corporate accounting officer, told him days before the deal that Gartner Inc. would buy CEB Inc.

U.S. District Judge Claude Hilton dismissed the SEC’s claims after regulators presented their evidence and before the case was referred to a jury. Judge Hilton said Monday, according to a transcript, “there is no circumstantial evidence to lead to the conclusion that he had received insider information.”

The SEC brings an average of about three dozen insider-trading cases a year, and many lawsuits involve more than one defendant. Most of the traders settle before going for the test. The SEC rarely loses when it goes to court, said John Reed Stark, a former SEC enforcement attorney now teaching at Duke Law School.

“Here you had really suspicious business, highly suspicious business, but no evidence of any communication about conspiracy or wrongdoing,” Mr Stark said. “It’s a clear, obvious loss” for the SEC, he added.

Mr Clark’s lawyer, Mark Cummings, said the results underscore that regulators may rely too heavily on statistical evidence, such as trades made just before an event caused a company’s stock price to rise or fall. Is. Data alone is not sufficient to support a civil or criminal case against a businessman, he said.

Mr Cummings said Mr Clark, 53, declined to settle the SEC’s lawsuit because he had good reasons to believe the rise in CEB shares. His research had nothing to do with his brother-in-law, William Wright, who served as CEB’s corporate controller.

“The lesson here is that suspicious trade is not necessarily trafficking,” Mr Cummings said. “Just because the circumstances look bad, there may be an equally innocent reason for the activity.”

The SEC sued M/s Clark and Wright in December 2020, alleging that they had communicated several times a month before the technology research firm Gartner acquired CEB, a management consulting company, and Mr. Wright took over his brother. Shared the news of the undeclared deal with- Law.

Mr. Wright agreed in October to settle the SEC’s lawsuit without admitting or denying the claims. He paid a $241,000 fine and agreed to be barred for two years from serving as an officer or director of a public company. “He is grateful for Judge Hilton’s decision,” said Kevin Muhldorf, an attorney for Mr. Wright.

At Monday’s hearing, an SEC lawyer suggested the agency could appeal the judge’s decision. An agency spokesperson declined to comment further.

According to the SEC, to pay for his trades, Mr. Clark sold investments owned by his wife, borrowed money from a credit union and took out a loan against his car. Mr Clark bet on the shares because he believed CEB’s share price was undervalued at the time and would climb after the broader market rally following the election of Donald Trump in November 2016, Mr Cummings. he said.

According to court records, Mr. Clark’s bet on CEB options was not out of character with his previous trade. According to the SEC’s complaint, he regularly traded CEB options for years, usually betting that the shares would decline after the company’s earnings.

The SEC alleged that some of Mr. Clark’s earlier trades followed a phone conversation with his brother-in-law, although court records did not specify what was said.

Judge Hilton said he was not impressed by the SEC’s argument, which was not strong enough for a jury to infer that Mr. Clark had access to material non-public information.

According to the hearing transcript, Judge Hilton said, “The government can infer that he made a little more money, he was a little more successful or more successful than that, so he’s getting insider information.” “But there’s no evidence of that.”