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Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.

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Speaker 2: Arkago's founder Bill Huang is on trial in New York

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Speaker 2: on charges of fraud and racketeering conspiracy that could end

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Speaker 2: with him being behind bars for the rest of his life.

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Speaker 2: For the past seven weeks, prosecutors have been trying to

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Speaker 2: persuade a jury that Huang built a fleeting thirty six

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Speaker 2: billion dollar fortune through a market manipulation racket that helped

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Speaker 2: topple the once mighty Credit Swiss group.

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Speaker 3: And as the.

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Speaker 2: Prosecution is winding down its case, it put its star

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Speaker 2: witness on the stand, former head trader William Tamida, who's

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Speaker 2: pleaded guilty and is testifying under a cooperation agreement. Joining

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Speaker 2: me is Bloomberg Legal reporter Chris Tomesh, who's been covering

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Speaker 2: the trial. Tell us about his direct testimony.

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Speaker 4: So he's been on the stand. He just left from

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Speaker 4: the witness stand after nearly two weeks of testimony, not

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Speaker 4: straight through. It was about four and a half days

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Speaker 4: total of direct testimony. I mean he has been under

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Speaker 4: cross since then. Although there was a brief redirect from

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Speaker 4: the prosecutors today during the direct testimony, he was pretty

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Speaker 4: he was pretty devastating to Wong and good for the

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Speaker 4: government's case. And he consistently testified, you know that in

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Speaker 4: the months leading up to the collapse, basically starting in

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Speaker 4: October twenty twenty, they had consistently been trading in the

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Speaker 4: ways that the government allegents was marketing in relation, you know,

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Speaker 4: trading before the market opened, trading into the clothes to

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Speaker 4: try to drive the prices higher, he said. And he's

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Speaker 4: been very consistent with his testimony, even on cross He

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Speaker 4: maintained that Dolls gave him these directions. He really was

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Speaker 4: kind of a micromanager in terms of how he directed

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Speaker 4: his traders to do transactions for him. They wouldn't let

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Speaker 4: them take bathroom breaks, they yelled at him when he

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Speaker 4: went the compliance. It's just kind of being at this

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Speaker 4: picture of him as an overbearing boss giving directions to

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Speaker 4: traders all the time.

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Speaker 2: He testified that Huang trained him to lie.

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Speaker 4: Yes, that was his consistent testimony from the beginning. The

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Speaker 4: Wong trained him, well, not really so much to lie,

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Speaker 4: but as to how to mislead the banks. There's kind

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Speaker 4: of different testimony about how direct the communications were in

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Speaker 4: terms of what he was told to do. You know,

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Speaker 4: in a lot of ways, Wong kind of implied things

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Speaker 4: a lot of times, did not instruct directly as to

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Speaker 4: what to do, but they had understood through previous direction

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Speaker 4: how he wanted to trade and what he would want

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Speaker 4: to do.

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Speaker 2: And he had an ongoing zoom call throughout the day.

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Speaker 4: Yeah, pretty much throughout the last you know, from October

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Speaker 4: to March of twenty twenty one. He said, Bill was

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Speaker 4: pretty much all day on a zoom call with the traders,

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Speaker 4: directing them what to do, sometimes from a corporate apartment,

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Speaker 4: sometimes from the office. They showed photos of him sitting

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Speaker 4: in front of this big monitor that had the firm's profit,

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Speaker 4: daily profit and loss in real time moving in front

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Speaker 4: of him, and to me, to testified that he just

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Speaker 4: sat there and kind of looked at the numbers, whether

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Speaker 4: they were green or red, and consistently tried to trade

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Speaker 4: around them.

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Speaker 2: I mean, he came off as not an awful boss,

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Speaker 2: you know, berating them in front of each other and

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Speaker 2: just not nice.

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Speaker 4: Yeah, at some point to me to have wiped tears

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Speaker 4: away when he was talking about how overbearing he was

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Speaker 4: and how he yelled at him when he went to compliance.

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Speaker 4: He definitely got emotional at some points during the testimony

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Speaker 4: kind of describing really when he described how Bill would

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Speaker 4: yell at him often when he didn't execute his directions properly.

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Speaker 2: And you write that he dressed differently, and also he

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Speaker 2: spoken terms that the jury could understand.

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Speaker 4: Yes, So the first couple of days, why I should say,

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Speaker 4: the first couple of weeks of trial that's been going

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Speaker 4: on since mid March, consisted of a lot of, you know,

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Speaker 4: straight financial talk that maybe the jury didn't understand, and

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Speaker 4: in a lot of cases the judge interjected to ask

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Speaker 4: them to explain certain terms. He'd wanted to explain, for example,

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Speaker 4: what meme stocks were, what short selling is, some very

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Speaker 4: you know, concepts that are pretty basic to people who

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Speaker 4: understand the financial markets, but maybe not to a jury

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Speaker 4: who's not well versed in it. But since to Meat

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Speaker 4: it has taken the stand, he's kind of understood the

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Speaker 4: need to explain some of the concepts and how they

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Speaker 4: were going. And he speaks in pretty plain English, And

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Speaker 4: like we said, he dresses differently than anybody else in

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Speaker 4: the corum. Every day he's had on just a jacket

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Speaker 4: and a T shirt, sneakers on cross.

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Speaker 2: The judge told Hwang's lawyer that he was boring the

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Speaker 2: jury to tears, something you don't want to hear if

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Speaker 2: you're a lawyer.

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Speaker 4: The judge has been consistently interjecting in the trial in

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Speaker 4: an unusual frequency, and it's hard to tell why, but

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Speaker 4: he has peppered the defense and the prosecutors for that matter,

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Speaker 4: with questions, told them that they're they're boring the jury,

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Speaker 4: asked them whether they've already covered this topic, and has

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Speaker 4: kind of rated them for boring, Like you said, directly

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Speaker 4: boring the jury. He's asked many of his own questions

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Speaker 4: in some cases even objected to his own questions. It's

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Speaker 4: been in very interesting dynamic to witness.

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Speaker 2: And explain how the defense wanted to try to impeach

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Speaker 2: his testimony and the judge wouldn't allow it.

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Speaker 4: Yes, the defense just wanted to kind of talk about

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Speaker 4: his lifestyle in the months following the collapse. During the summer,

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Speaker 4: he was writing friends that he had been playing polo

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Speaker 4: in Saint Tropez and he had been having a great

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Speaker 4: time partying every day, and they tried to inquire about

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Speaker 4: that and the prosecution objective and the judge shut it down.

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Speaker 4: But then in a letter they kind of wanted to

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Speaker 4: re examine that, saying that it really showed his state

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Speaker 4: of mind, because he had testified during the trial that

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Speaker 4: once he saw in plain English what he had done

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Speaker 4: at Arcagos, that he was racked with guilt. And the

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Speaker 4: defense says, well, at the same time he's racked with guilt,

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Speaker 4: he's over in France playing polo. They said that kind

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Speaker 4: of contradicted that contention, and they asked to ask him

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Speaker 4: about it, but they were basically shut down because the

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Speaker 4: judge said his wealth and whether he plays polo is

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Speaker 4: not really relevant to the case. Now they're saying, you've

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Speaker 4: examined his credibility, but not his way of life. So

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Speaker 4: that was an angle of attact for the defense that

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Speaker 4: was that was pretty quickly shut down.

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Speaker 2: That would have awakened the jury probably, so was the

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Speaker 2: defense able to scorny points on Cross.

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Speaker 4: The defense definitely landed some points on Cross. They got

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Speaker 4: him to admit that, you know, he lied basically to Bill,

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Speaker 4: told him what he wanted to hear because that's what

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Speaker 4: he thought he wanted. You know, how much that will

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Speaker 4: help them, It's hard to say, but definitely. Barry Burke,

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Speaker 4: the lawyer for Loong, definitely landed some blows over the

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Speaker 4: days because nearly every question Tomita couldn't remember or needed

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Speaker 4: a documentary fresh his recollection, and that was repeated. Burke

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Speaker 4: went carefully through each transaction that the government alleges was,

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Speaker 4: you know, marketing inflation, and asked each time about each

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Speaker 4: facet of the transaction, and every time to Meta kind

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Speaker 4: of said, well, this is something that Bill told us

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Speaker 4: to do. But he couldn't remember Tea events even if

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Speaker 4: he had testified about them earlier in the trial. So,

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Speaker 4: you know, it remains to be seen how seriously the

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Speaker 4: jury takes to meat a testiment.

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Speaker 2: So in other words, he was fine on direct examination

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Speaker 2: and didn't have to have his memory refreshed, but it

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Speaker 2: all changed on cross.

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Speaker 4: Yeah, that's kind of the way it goes. I mean,

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Speaker 4: obviously that's a pretty common scenario in criminal trials, but

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Speaker 4: it was pretty noteworthy because of the sheer number of

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Speaker 4: days he's been on the stand.

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Speaker 2: I'm surprised that the prosecution didn't prep him better for

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Speaker 2: a cross. So explain why his testimony is important. You

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Speaker 2: know what the prosecution is trying to show with it.

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Speaker 4: This is easily the most important witness for the proxecution

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Speaker 4: because it directly links Swung to some of the alligators

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Speaker 4: and the market manipulation because he testified that they were

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Speaker 4: basically trying to goose stocks. They were trying to drive

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Speaker 4: them higher and get the values up, whether or not

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Speaker 4: there were actual reasons for them. But he also did testify,

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Speaker 4: you know, and that's also the defense definitely landed some

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Speaker 4: points here when they got him to admit that, you know,

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Speaker 4: Wang did have fundamental reasons why he liked some of

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Speaker 4: these stocks. He did think they were in good investment team.

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Speaker 4: For example, thought Viacom, you know, had good content and

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Speaker 4: he liked content, he watched it. He had a lot

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Speaker 4: of reasons to invest in the companies he did. So,

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Speaker 4: you know, the remains to see how much the jury

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Speaker 4: makes of that, but it definitely regardless of whether there's

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Speaker 4: marketing in relation there, Wong did articulate specific reasons for

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Speaker 4: wanting to invest in the companies he invested in and.

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Speaker 2: Tell us about the testimony of the former head of

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Speaker 2: risk at Arkago, Scott Becker, another key witness in the trial.

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Speaker 4: Yeah, Becker was a lot more dour. He didn't seem

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Speaker 4: real happy to be there, not that anyone's ever happy

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Speaker 4: to take the stand in a criminal trial, but he's

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Speaker 4: a much more important witness for the government against the

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Speaker 4: former CFO Patrick Halligan because he worked directly with Halligan

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Speaker 4: and not really directly with Meta or Huang. He was

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Speaker 4: communicating regularly, obviously giving traders instructions, but it's kind of

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Speaker 4: hands off with the operations team for the most part.

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Speaker 4: So Becker talked about how Halligan told him to lie,

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Speaker 4: how they scheme to lie to the banks in the

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Speaker 4: last week of the firm's existence and mislead them about

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Speaker 4: where its investments were, how much they were spread at

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Speaker 4: other banks, and how much you know, how much knab

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Speaker 4: they had essentially, and there have.

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Speaker 2: Been expert witnesses testifying that the trades, a lot of them,

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Speaker 2: didn't make any sense unless it was market manipulation.

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Speaker 4: Yeah, we've had one expert for the prosecution. The defense

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Speaker 4: is going to start with two of its own experts,

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Speaker 4: so there will be a case there whether or not

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Speaker 4: Huang testifies, this of course entirely up to the defense

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Speaker 4: and will be seen. But they did have the government

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Speaker 4: did have experts testify that the trading didn't make any

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Speaker 4: sense unless you were just trying to get the move

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Speaker 4: the stocks higher.

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Speaker 2: And how close is the government to the end of

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Speaker 2: its case.

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Speaker 4: Very close, They could rest sometime this week. There's still

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Speaker 4: a little ways to go in terms of the case

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Speaker 4: because the sheer length of the trial has required a

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Speaker 4: few off days for Jewish holidays and some other things

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Speaker 4: for jurors that had prior obligations, and one of the

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Speaker 4: jurors has to leave by the first But the jury's

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Speaker 4: likely to get the case, probably the week after the

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Speaker 4: July fourth holiday, but it's not entirely crystal clear as

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Speaker 4: to what the time it will be at this point.

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Speaker 2: And do you think the case has been so complicated

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Speaker 2: that some of the jurors might be lost?

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Speaker 4: Certainly possible. Some of them have looked leepy. That's not

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Speaker 4: really unusual obviously for a long criminal case, but it's

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Speaker 4: hard to say. There's been a lot of testimony. There's

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Speaker 4: been one witness on giving the details of very complicated

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Speaker 4: financial transactions for nearly two weeks, so it would be

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Speaker 4: easy to see how some of the jurors might have

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Speaker 4: checked out a little bit.

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Speaker 2: And maybe that's why the judge keeps interrupting to keep

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Speaker 2: them awake. Thanks so much, Chris. That's Bloomberg Legal reporter

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Speaker 2: Chris Domesh coming up next on the Bloomberg Law Show.

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Speaker 2: It's the Justice Department's first conviction of insider trading charges

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Speaker 2: based solely on an executive's use of a ten B

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Speaker 2: five trading plan, but the Department says it won't be

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Speaker 2: the last. I'm June Grosso and you're listening to Bloomberg.

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Speaker 2: It's the first prosecution of its kind by the Justice Department,

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Speaker 2: but the Department is warning it won't be the last.

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Speaker 2: Tarn Piser, the former CEO and chairman of on Track,

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Speaker 2: a publicly traded healthcare company, was found guilty Friday of

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Speaker 2: a multimillion dollar insider trading scheme. In the novel case,

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Speaker 2: federal prosecutors brought criminal insider trading charges based exclusively on

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Speaker 2: Piser's use of ten B five trading plans, which allow

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Speaker 2: company insiders to create a predetermined plan to sell shares

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Speaker 2: while also setting limits on certain trading practices. Prosecutors say

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Speaker 2: Pizer violated those limits when he set up two plans

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Speaker 2: in twenty twenty one to sell shares in order to

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Speaker 2: avoid more than twelve point five million dollars in losses.

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Speaker 2: While he was in possession of material non public information

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Speaker 2: that on Track was about to lose its largest customer.

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Speaker 2: Joining me is white collar criminal defense attorney Margot Laporte,

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Speaker 2: a partner at Dorsey and Whitney. Margo start by explaining

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Speaker 2: these rule ten by five to one trading plans.

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Speaker 3: Sure, So, a rule teny five to one plan is

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Speaker 3: a preset trading plan that executives or board directors or

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Speaker 3: others within a company that have access to inside information

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Speaker 3: can set. And what these trading plans do is that

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Speaker 3: when they're entered into in good faith and without the

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Speaker 3: benefit of material non public information, they can provide an

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Speaker 3: affirmative defense to insider trading charges. So, for example, a

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Speaker 3: CEO of a company could set a Rule ten B

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Speaker 3: five to one plan that says, sell ten thousand shares

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Speaker 3: of this company every six months, and if after a year,

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Speaker 3: ten thousand shares are sold and the next day the

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Speaker 3: company announces negative news and its stock price drops, that

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Speaker 3: plan can provide an affirmative defense to any allegation that

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Speaker 3: the CEO engaged in insider trading.

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Speaker 2: And what were the Justice Department's specific charges against Peiser?

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Speaker 3: So both the SEC and the DOJ filed charges against

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Speaker 3: Karen Heiser, who was a former CEO and chairman of

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Speaker 3: the board of a company called on Track, Inc. And

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Speaker 3: they alleged that mister Pliser in May and August twenty

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Speaker 3: twenty one, sold more than twenty million dollars of on

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Speaker 3: Track stocks and avoided more than twelve point five million

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Speaker 3: dollars in losses by entering into two of these Rule

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Speaker 3: ten B five to one trading plans while he had

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Speaker 3: MMPI or material non public information about the risk that

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Speaker 3: on Track would lose its then largest customer. And so again,

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Speaker 3: by entering into these plans and by trading in on

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Speaker 3: Track shairs, he allegedly avoided losses once on Track announced

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Speaker 3: that its largest customer would terminate its contract.

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Speaker 2: So the plan that is supposed to shield executives against

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Speaker 2: suspicions of inside trading, the prosecution says, was used fraudulently here.

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Speaker 3: Yes, and this has been a concern that has been

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Speaker 3: expressed by SEC and other regulators for many years now,

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Speaker 3: the misuse of Rule ten B five to one plans

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Speaker 3: by corporate insiders who put up the plan or take

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Speaker 3: down the plan when they already have inside information and

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Speaker 3: try to use the plan as a shield to avoid

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Speaker 3: liability for what is in fact insider trading. And so

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Speaker 3: that's what DOJ and SEC allege that mister Piser did here,

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Speaker 3: and it's important because it's the first case where the

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Speaker 3: DOJ has brought charges based solely on that allegation around

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Speaker 3: Rule ten B five one plans.

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Speaker 2: And prosecutors say that Piser set up his first trading

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Speaker 2: plan on May tenth of twenty twenty one and disclose

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Speaker 2: that he planned to sell five hundred and ninety six

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Speaker 2: thousand shares, but then he started trading the very next day,

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Speaker 2: so the timing was suspicious.

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Speaker 3: Yeah, So in cases like this, it is often a

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Speaker 3: very fact specific allegation, and the timing is a key

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Speaker 3: fact in this. And so DOJ and SEC alleged that

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Speaker 3: with respect to the first plan in May twenty twenty one,

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Speaker 3: mister Piser began put up the plan shortly after he

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Speaker 3: learned that the relationship between on Track and its customer

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Speaker 3: was deteriorating and that the customer had expressed reservations about

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Speaker 3: continuing the contract. And so shortly after that, mister Piser

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Speaker 3: put up the first ten by five to one plan

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Speaker 3: in May twenty twenty one, and allegedly began trading one

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Speaker 3: day after he put up the contract, even though he

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Speaker 3: had been warned by two brokers that best practice would

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Speaker 3: be to wait for thirty days before trading and what's

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Speaker 3: called a cooling off period. With respect to the second plan,

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Speaker 3: in August twenty twenty one, the regulators alleged that mister

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Speaker 3: Piser put up the plan just one hour after on

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Speaker 3: Track chief negotiator told him that the contract with the

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Speaker 3: customer would likely be terminated. And again, mister Piser began

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Speaker 3: selling shares very shortly after putting up that contract instead

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Speaker 3: of observing a cooling off period. And so it is

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Speaker 3: certainly that timing of between the time when mister Piser

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Speaker 3: learned of allegedly inside information, when he put up his

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Speaker 3: ten by five to one plan, and when he began

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Speaker 3: trading under the plan that raised suspicions with the regulators

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Speaker 3: and that they emphasized at trial.

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Speaker 2: Piser's defense said that the chief financial officer at on

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Speaker 2: Track had signed off on use of the trading plan

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Speaker 2: and had said that Pfiser didn't have material non public information,

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Speaker 2: and so the defense was, well, my client was allowed

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Speaker 2: to rely on the management team's advice, So.

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Speaker 3: The defense tried to negate allegations of insider trading on

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Speaker 3: several grounds, the first being, as you've just said, the

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Speaker 3: idea of intent. In a criminal case, the prosecution needs

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Speaker 3: to prove that the conduct was knowing or willful, and

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Speaker 3: so the defense argued that mister Piser was entitled and

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Speaker 3: did rely on the advice of his management team, that

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Speaker 3: there was no MMTI at the time he entered into

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Speaker 3: his trading plans, and they also argued that mister Piser

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Speaker 3: had expressed his intention to sell these expiring on Track

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Speaker 3: stock warrants long before on Track customers communicated concerns about

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Speaker 3: its contracts. It is also important to note that though

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Speaker 3: the prosecution made a big deal about the fact that

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Speaker 3: mister Piser did not observe a cooling off period at

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Speaker 3: the time, cooling off periods were not legally required before

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Speaker 3: trading under Rule TEND five to one plans, and so

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Speaker 3: mister Piser was not under a legal requirement to observe

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Speaker 3: the cooling off period recommended by his brokers, although best

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Speaker 3: practices would have suggested that he should have done.

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Speaker 2: So, what kind of time is he facing realistically? I

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Speaker 2: know he faces like a maximum of twenty five years

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Speaker 2: on the securities fraud charge and twenty on each of

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Speaker 2: the two insider trading counts. I mean, what is he

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Speaker 2: more likely to get It's.

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Speaker 3: Hard to say. It certainly depends on well, first of all,

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Speaker 3: there will be appeals later, I imagine, but at sentencing

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Speaker 3: it will certainly depend on the sentencing memorandum and reports

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Speaker 3: that are put in. Judges do consider a prior history

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Speaker 3: of misconduct, the level of intentionality, and the amounts at

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Speaker 3: issue when determining sentencing.

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Speaker 2: The defense said they'll appeal what they called a travesty

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Speaker 2: of justice and said that the testimony a trial showed

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Speaker 2: Piser didn't act in bad faith because he relied on

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Speaker 2: the advice of his management team when setting up the

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Speaker 2: trading plans. And now, as far as other cases, the

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Speaker 2: Justice Department seems ready to go. The head of the

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Speaker 2: Criminal Division of the Justice Department said, this is the

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Speaker 2: Justice Department's first insider trading prosecution based exclusively on the

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Speaker 2: use of a trading plan, but it will not be

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Speaker 2: our last. Will not let corporate executives who trade on

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Speaker 2: inside information hide behind trading plans they established in bad faith. Now,

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Speaker 2: how does the Justice Department look for these kinds of violations.

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Speaker 3: So there has been and the DOJ and SEC have

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Speaker 3: both said that this is part of what they have

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Speaker 3: called a quote data driven Initiatives end QUOTE to identify

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Speaker 3: abuses of rule TEND five to one plans. And what

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Speaker 3: that means is that SEC has sophisticated data analytics tools

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Speaker 3: computer algorithms that it uses to flag unusual trades, especially

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Speaker 3: around company disclosures or major market announcements. And so based

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Speaker 3: on that market surveillance, DJ and SEC can serve zatinas

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Speaker 3: against companies and individuals and get additional information. SEC, under

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Speaker 3: new rules that were implemented or that updated Rule ten

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Speaker 3: B five to one is going to be getting even

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Speaker 3: more information from companies about their ten B five to

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Speaker 3: one plans and can put that information into the system

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Speaker 3: to analyze potentially anomalist trading patterns, as well as new

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Speaker 3: whistleblower programs that are being implemented by DOJ that will

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Speaker 3: likely lead to further whistleblower reports. And so there are

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Speaker 3: a number of inputs that SEC and DJ are going

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Speaker 3: to be receiving, and I think that market participants often

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Speaker 3: underestimate the sophistication of the SEC's data analytics tools and

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Speaker 3: the SEC's ability to identify unusual trading patterns even in

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Speaker 3: relatively low value trades. And so I think DOJ and

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Speaker 3: SEC are both signaling here to market participants the abilities

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Speaker 3: of their data analytics tools and the fact that they

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Speaker 3: will bring prosecutions against suspicious trading.

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Speaker 2: Coming up next on the Bloomberg Law Show, I'll continue

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Speaker 2: this conversation with White Color defense attorney Markel Laporte about

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Speaker 2: best practices going forward.

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Speaker 5: Tougher problems require creative solutions. That is why our prosecutors

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Speaker 5: do not just wait for cases to come to us. No, instead,

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Speaker 5: we detect wrongdoing through proactive and sophisticated methods of identifying

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Speaker 5: criminal wrongdoing, including groundbreaking data analytics.

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Speaker 2: In March of last year, Assistant Attorney General for the

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Speaker 2: Criminal Division Kenneth Pollitt talked about the data driven initiative

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Speaker 2: which led to the arrest of Sharon Piser.

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Speaker 5: In some respects, this is a classic insider trading case.

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Speaker 5: It's a high level executive who allegedly cheated the market

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Speaker 5: by trading on inside information. But this case is indeed

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Speaker 5: remarkable for what it says about our prosecutors creative problem solving.

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Speaker 5: Over the last two years. Through their engineouit, through their grid,

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Speaker 5: through their creativity. Our team identified this defendant who allegedly

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Speaker 5: tried to use the cloak of a ten B five

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Speaker 5: to one plan as cover for his criminal conduct. Take

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Speaker 5: note because I certainly expect other similar cases will follow.

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Speaker 2: And a similar warning from the Justice Department was delivered

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Speaker 2: after Taron Peiser, the former CEO and chairman of on Trak,

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Speaker 2: was found guilty Friday of a multimillion dollar insider trading scheme.

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Speaker 2: In the novel case, federal prosecutors brought the charges based

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Speaker 2: exclusively on Pfizer's use of ten B five trading plans.

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Speaker 2: I've been talking to white collar criminal defense attorney Margot Laporte, a.

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Speaker 1: Partner at Dorsey and Whitney.

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Speaker 2: The Justice Department's focus on this and the amount of

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Speaker 2: resources they're putting toward these prosecutions is that because there's

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Speaker 2: information out there that a lot of executives are misusing

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Speaker 2: these ten BE five trading plans.

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Speaker 3: Yes, so, the Wall Street Journal and others have done

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Speaker 3: have reported recently and done various analyzes around both the

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Speaker 3: timing between when executives have put up plans and begun trading,

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Speaker 3: as well as the timing of when plans are put

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Speaker 3: up or taken down. These as the major corporate announcements,

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Speaker 3: and even the public reporting. Certainly, I imagine the SEC

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Speaker 3: has done its own analyzes internally, but the public reporting

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Speaker 3: by the Wall Street Journal and others has suggested correlations

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Speaker 3: between the use of tenby five to one plans, trading

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Speaker 3: and major corporate events.

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Speaker 2: The SEC updated the rules, how so what changes did

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Speaker 2: they make?

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Speaker 3: Sure? So the SEC? The secs interestingly in terms of time.

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Speaker 3: The SEC's amendments to Rule TEND five to one, which

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Speaker 3: governs these tendy five to one plans that we've been

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Speaker 3: talking about, went into effect the same week that it

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Speaker 3: brought its case against mister Pliser, and these amendments to

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Speaker 3: Rule TEND five to one are intended to address many

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Speaker 3: of the issues that are concerned that FBC has been

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Speaker 3: expressing over time. So, for example, there are required cooling

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Speaker 3: off periods between the time that executives and directors and

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Speaker 3: others put up their plans and when they can start trading. Previously,

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Speaker 3: they were not required cooling off periods, and so now

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Speaker 3: there are required periods. They have also prohibited under certain circumstances,

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Speaker 3: overlapping ten by five to one plans, so people having

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Speaker 3: ten by five to one plans on top of one another.

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Speaker 3: And there are also now new disclosure requirements that public

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Speaker 3: companies must make to the SEC regarding their insider trading

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Speaker 3: policies and procedures and the use of ten B five

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Speaker 3: one plans. So certainly, together with this Fiser case, on

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Speaker 3: Track case and other recent enforcement actions signals that DOJ

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Speaker 3: and SEC are cracking down on the use of ten

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Speaker 3: B five to one plants by executives and making sure

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Speaker 3: that when they are used and used as a affirmative defense,

440
00:27:40,760 --> 00:27:43,840
Speaker 3: is in good faith and without MNPI.

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00:27:44,320 --> 00:27:47,199
Speaker 2: And tell us about the recent conviction of the former

442
00:27:47,280 --> 00:27:50,399
Speaker 2: Metivation executive also using a novel theory.

443
00:27:50,880 --> 00:27:54,440
Speaker 3: Yes, so this was another case, another first of its

444
00:27:54,520 --> 00:27:59,040
Speaker 3: kind case. Like the on Track case, the conviction of

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00:27:59,160 --> 00:28:04,879
Speaker 3: the Metation executive UH was a case brought by the SEC,

446
00:28:05,800 --> 00:28:09,320
Speaker 3: and it was under what we would consider it to

447
00:28:09,400 --> 00:28:14,359
Speaker 3: be a novel theory of insider trading, which is that

448
00:28:15,320 --> 00:28:18,840
Speaker 3: called shadow trading. It is the idea that the use

449
00:28:19,000 --> 00:28:24,240
Speaker 3: of confidential information of one company is used to trade

450
00:28:24,320 --> 00:28:30,240
Speaker 3: in securities of an economically linked company. And I consider

451
00:28:30,280 --> 00:28:33,240
Speaker 3: it to be a novel application of what's called the

452
00:28:33,280 --> 00:28:38,680
Speaker 3: misappropriation theory of insider trading, so the theory that information

453
00:28:38,840 --> 00:28:44,800
Speaker 3: is misappropriated and used elsewhere in order to insider trade.

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00:28:44,880 --> 00:28:47,360
Speaker 3: The SEC has said that they don't believe it's a

455
00:28:47,440 --> 00:28:51,120
Speaker 3: novel theory and that is and that it is classic

456
00:28:51,440 --> 00:28:55,480
Speaker 3: UH insider trading. But in any case, it was the

457
00:28:55,480 --> 00:28:58,800
Speaker 3: first time that the SEC brought charges on this theory.

458
00:29:00,040 --> 00:29:07,320
Speaker 3: And in that case, a executive used confidential information about

459
00:29:07,320 --> 00:29:12,000
Speaker 3: the impending announcement of the acquisition of the biopharmaceutical company

460
00:29:12,040 --> 00:29:16,840
Speaker 3: that he worked for, Medivation, and he used the information

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00:29:16,920 --> 00:29:20,280
Speaker 3: that that company would be acquired in order to purchase

462
00:29:20,520 --> 00:29:26,840
Speaker 3: a large stake and call options in a different biopharmaceutical company, Insights.

463
00:29:27,560 --> 00:29:31,440
Speaker 3: And when it was announced that his company, Metivation, would

464
00:29:31,480 --> 00:29:36,720
Speaker 3: be acquired by Speiser, the shared in that economically linked company,

465
00:29:36,800 --> 00:29:41,560
Speaker 3: Insights increased and he earned more than one hundred thousand

466
00:29:41,640 --> 00:29:44,280
Speaker 3: dollars as a result. And so the SEC charged that

467
00:29:44,400 --> 00:29:48,360
Speaker 3: is insider trading, and in April of this year obtained

468
00:29:48,600 --> 00:29:49,960
Speaker 3: a conviction at trial.

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00:29:50,960 --> 00:29:55,280
Speaker 2: They're on a roll. So how do you advise clients

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00:29:55,320 --> 00:29:56,920
Speaker 2: in light of these two cases?

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00:29:57,680 --> 00:30:01,680
Speaker 3: Yes, so these cases signaled well, as has been a

472
00:30:01,720 --> 00:30:05,200
Speaker 3: trend over the past several years that SEC and DJ

473
00:30:05,520 --> 00:30:12,000
Speaker 3: are aggressively enforcing forceved insider trading violations, and so for

474
00:30:12,440 --> 00:30:18,479
Speaker 3: public companies and corporate insiders, and particularly regulated entities that

475
00:30:18,640 --> 00:30:26,280
Speaker 3: have distinct obligations regarding their insider trading policies, it's time

476
00:30:26,400 --> 00:30:30,280
Speaker 3: to review their insider trading policies and Rule TEND five

477
00:30:30,320 --> 00:30:34,080
Speaker 3: to one plans, and they should review them both to

478
00:30:34,240 --> 00:30:38,920
Speaker 3: ensure compliance with the SEC's recent amendments to Rule TEND

479
00:30:39,080 --> 00:30:42,120
Speaker 3: five to one, so, for example, the requirement of a

480
00:30:42,160 --> 00:30:48,280
Speaker 3: cooling off period, but also with the best practices and

481
00:30:48,640 --> 00:30:54,000
Speaker 3: the learnings that have come from these recent victories at trial, So,

482
00:30:54,200 --> 00:31:00,360
Speaker 3: for example, ensuring that insider trading policies and training things

483
00:31:00,760 --> 00:31:03,880
Speaker 3: take into account the concept of shadow trading, which was

484
00:31:04,360 --> 00:31:09,640
Speaker 3: a new concept when the SEC brought its case. Making

485
00:31:09,680 --> 00:31:19,120
Speaker 3: sure that procedures and controls can adequately assess whether corporate

486
00:31:19,160 --> 00:31:24,200
Speaker 3: insiders possess material non public information at the time that

487
00:31:24,240 --> 00:31:28,160
Speaker 3: they are adopting, modifying, or canceling Rules TEND five to

488
00:31:28,200 --> 00:31:32,160
Speaker 3: one plans, and taking account into account the potential but

489
00:31:32,200 --> 00:31:38,400
Speaker 3: the potential perception of misconducts as well if trading occurs

490
00:31:38,520 --> 00:31:43,640
Speaker 3: around the time of major corporate events, and so it's

491
00:31:43,680 --> 00:31:49,480
Speaker 3: a higher burden on companies, on public companies around ten

492
00:31:49,560 --> 00:31:52,040
Speaker 3: by five to one plans than it used to be.

493
00:31:52,480 --> 00:31:56,600
Speaker 3: And that burden is imposed both by the rules around

494
00:31:56,720 --> 00:31:59,480
Speaker 3: the amended rules around ten by five to one, but

495
00:31:59,720 --> 00:32:03,000
Speaker 3: also so evolving views of best practices.

496
00:32:04,080 --> 00:32:06,000
Speaker 1: Any final words of advice.

497
00:32:07,360 --> 00:32:13,000
Speaker 3: Just to reiterate again that it is a good time

498
00:32:13,720 --> 00:32:17,400
Speaker 3: now that these cases have been resolved, the shadow trading case,

499
00:32:18,000 --> 00:32:22,560
Speaker 3: the on track case, and now that the amendments to

500
00:32:22,680 --> 00:32:26,200
Speaker 3: rule at TEND five to one has become effective, that

501
00:32:26,280 --> 00:32:30,800
Speaker 3: it's a good time now for public companies to evaluate

502
00:32:30,880 --> 00:32:35,280
Speaker 3: their insider trading policies and procedures and training programs.

503
00:32:35,680 --> 00:32:38,080
Speaker 2: Thanks so much for being on the show, Margo, That's

504
00:32:38,120 --> 00:32:42,280
Speaker 2: white color. Criminal defense attorney Margot Laporte, a partner Dorsey

505
00:32:42,320 --> 00:32:46,800
Speaker 2: and Whitney. In other legal news today, Wiki League's founder

506
00:32:46,920 --> 00:32:51,280
Speaker 2: Julianassange has arrived at a federal courthouse in Saipan ahead

507
00:32:51,280 --> 00:32:54,000
Speaker 2: of an expected guilty play in a deal with the

508
00:32:54,120 --> 00:32:57,560
Speaker 2: US Justice Department that will set him free to return

509
00:32:57,640 --> 00:33:01,560
Speaker 2: home to Australia. A set to admit to a felony

510
00:33:01,640 --> 00:33:05,800
Speaker 2: for publishing US military secrets under a deal that spares

511
00:33:05,880 --> 00:33:09,480
Speaker 2: him prison time in America after years spent jailed in

512
00:33:09,560 --> 00:33:14,400
Speaker 2: the United Kingdom while fighting extradition here. The agreement seeks

513
00:33:14,440 --> 00:33:18,320
Speaker 2: to end an international fight to prosecute a Songe that

514
00:33:18,360 --> 00:33:23,040
Speaker 2: has been underway since sensitive US military documents, warlongs, and

515
00:33:23,120 --> 00:33:27,800
Speaker 2: diplomatic cables were publicly leaked in twenty ten and twenty eleven,

516
00:33:28,240 --> 00:33:31,840
Speaker 2: including footage of a US airstrike in Baghdad a few

517
00:33:31,880 --> 00:33:34,560
Speaker 2: years earlier. And that's it for this edition of the

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Speaker 2: Bloomberg Law Podcast. Remember you can always get the latest

519
00:33:37,960 --> 00:33:40,880
Speaker 2: legal news by subscribing and listening to the show on

520
00:33:40,920 --> 00:33:45,280
Speaker 2: Apple Podcasts, Spotify, and at Bloomberg dot com, slash podcast,

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00:33:45,320 --> 00:33:46,200
Speaker 2: Slash Law.

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Speaker 1: I'm June Grosso and this is Bloomberg