Investor Relations Executive Charged with Insider Trading in Client Stock
The SEC imposed fines and a “conduct-based injunction” against the partner at an investor relations firm charged with trading on inside information about his clients. The SEC alleges that the defendant abused his insider status when he traded shares of two clients based on material earnings information that the defendant learned while preparing upcoming press releases. The SEC asserts that the defendant was a “temporary insider” because his vendor relationship granted him access to confidential information. As such, he “had a duty of trust and confidence” to his clients and their shareholders and breached that duty by engaging in insider trading. The conduct-based injunction prohibits the defendant or his firm from trading in the stock of any client during the engagement and for one year thereafter and requires notice to clients. The SEC notes that the defendant had been a partner at an investment advisory firm and worked as a registered representative at two brokerage firms before his investor relations career.
OUR TAKE: This is how a regulatory violation can ruin a business. Although the fines imposed are not significant, the action itself (and its public availability) may make it difficult to secure the trust of potential clients.