Matthew Panuwat was a business development executive at Medivation, an oncology-focused biopharmaceutical company. Panuwat learned from Medivation’s CEO that the company expected to be acquired by a major pharmaceutical company, Pfizer, within a few days, at a premium to the then-market price. Panuwat did not trade in Medivation securities. Rather, within minutes of hearing the news, Panuwat purchased out-of-the-money call options in Incyte Corporation, another oncology-focused biopharmaceutical company that he believed would increase in value when the Medivation acquisition was announced.
If Panuwat traded in Medivation’s stock or Pfizer’s stock, that clearly would have been insider trading.
But he didn’t trade in the stock in play. He traded in Incyte, a completely unrelated company that happened to be in the same industry and about the same size as Medivation. He bet that there would be increased interest in this space and the merger price of Medivation would float the value of similar companies.
Should this be insider trading?
The Securities and Exchange Commission thinks so. It brought charges against Mr. Panuwat for this 2016 trade. I’m sure your noticing the big time gap. The SEC filed just before the expiration of the statute of limitations.
The SEC seems to be hanging its charges on Medivation’s insider trading policy:
“Because of your access to this information, you may be in a position to profit financially by buying or selling or in some other way dealing in the Company’s securities…or the securities of another publicly traded company, including all significant collaborators, customers, partners, suppliers, or competitors of the Company.”
A company’s definition of insider trading shouldn’t be the standard for a government action. Should it?
The SEC states:
Panuwat’s undisclosed, self-serving use of Medivation’s information to purchase securities, in breach of his duty of trust and confidence, defrauded Medivation and undermined the integrity of, and investor confidence in, the securities markets.
Panuwat did make an aggressive trade. He purchased 578 out-of-the-money call options with less than a month left to expiration. The options had strikes from $80 to $85 when Incyte’s stock was trading at $76. I’m sure that triggered some compliance review at his brokerage and probably got red flagged for further review.
The SEC is claiming that Panuwat used confidential information he acquired from his employer. That seems right. The question is how far should that dome of limiting action should spread. The SEC seems to think it should be a big dome. It should reach out to peer/competitor companies.
Given how long this has been sitting around, there must be some hand wringing at the SEC. The complaint is bit short on facts given that there has been five years to gather information.
In compliance, how do you deal with this potential expansion of the insider trading limits? It sounds like insider trading polices and monitoring would have to include peers of the company. Of course, this all assumes this case comes out in favor of the SEC.
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