- March 18, 2014
- Labaton Sucharow
On Thursday, the SEC announced another set of insider trading charges against an employee of CR Intrinsic, an affiliate of the now-infamous hedge fund advisor SAC Capital Advisors. According to the SEC complaint, CR Intrinsic analyst Ronald A. Dennis received multiple non-public tips about Dell, Inc. and Foundry Networks, Inc. from a friend, which he then passed along to two portfolio managers. The portfolio managers immediately placed trades based on this inside information, allowing CR Intrinsic to reap millions in improper gains and avoid significant losses. Pursuant to a settlement with the SEC, Dennis has been barred from working in the securities industry and forced to pay $200,000 in penalties (to learn more about insider trading violations and the penalties associated with them, please visit our Securities Law Primer).
While the SEC’s case against SAC founder Steve A. Cohen, and the criminal charges against SAC itself, have garnered far more attention than the case against Dennis, this case represents a wake-up call to employees that they may be subject to liability even if they are not headline-grabbing senior employees or the masterminds of a fraudulent scheme: as an analyst, Dennis was a relatively low-level employee with no direct trading authority, and many steps removed from Cohen or other SAC leaders. His case underscores that such employees face stark choices if their corporate culture encourages law-breaking: they can either “go along” with that culture and face liability, or take a stand by refusing to participate in illegal activity, leaving the entity, and/or blowing the whistle either internally or externally. Too often, employees chose the former route, either because it represents the “path of least resistance” or because there are financial incentives to engage in or condone wrongdoing. Our hope is that the advent of the SEC Whistleblower Program will help balance the playing field between these options by creating a financial incentive to do the right thing. It may be too late for Dennis, but it’s not too late for other employees in a similar position.
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