On June 15, the SEC announced that it had charged several individuals in an alleged insider trading scheme that resulted in nearly $1.7 million in illegal profits and losses avoided.  It all centered on an insider trading ring in Silicon Valley. The SEC alleged that the former revenue recognition manager of Infinera Corporation regularly provided non-public information concerning the company’s quarterly earnings to his best friend.  The friend was a high school teacher and bookmaker – an interesting combination – and provided the same information to an individual who owed him a six-figure gambling debt.  The gambler then allegedly provided the information to three of his friends.  The teacher, the gambler, and the gambler’s friends all allegedly traded on the non-public earnings information. Additionally, one of the gambler’s friends also allegedly provided material non-public information to the gambler regarding Fortinet Inc.  The gambler then allegedly provided that information to one of his other friends and the teacher.  In all, the group is alleged to made nearly $1.7 million from trades based on this non-public information.  Four of the defendants agreed to pay a total of $653,827 in civil penalties.  The civil penalties against one defendant are still to be decided by the court, and litigation against the final defendant remains ongoing.  

The SEC stated that it used “sophisticated data analysis . . . to uncover the insider trading ring . . .”  The use of emerging technology has become more and more prevalent in the initiation of SEC insider trading and accounting investigations.  Artificial intelligence and big data are tools that the SEC now regularly uses to identify potential securities laws violations without the involvement of a whistleblower.  With the confirmation of new SEC Chairman Gary Gensler, there is likely to be an even greater emphasis on the use of emerging technologies in investigations.  Prior to his nomination to head the SEC, Gensler served as a professor teaching courses on Financial Technologies at MIT.  Gensler’s faith in these technologies is likely to lead to even greater volumes of data-driven SEC investigations.  

The attorneys at Chilivis Grubman represent clients of all types and sizes in connection with SEC investigations and related securities litigation.  If you need assistance with such a matter, please contact us today.