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Defendant Settles Long-Running Insider Trading Litigation
08/01/2016On July 25, 2016, the Securities and Exchange Commission (“SEC”) announced that on July 20, 2016, the Honorable Charles Pannell of the Northern District of Georgia entered a final judgment against Michael Sean Cain. Pursuant to the judgment, Cain consented to a permanent injunction and to pay a civil penalty of $36,991.20, a sum that exceeds his own alleged insider trading profits by less than $350, despite allegations that persons to whom he provided the insider information earned profits that exceeded $380,000.
Cain was one of four defendants in the action, which the SEC filed in 2012. The suit against Cain and his co-defendants arose after French pharmaceutical company Sanofi-Aventis announced a tender offer for a Tennessee-based pharmaceutical company, Chattem, on December 21, 2009, causing Chattem’s stock to close over 32% higher than on the previous day. Before the announcement, one of Chattem’s board members revealed the upcoming tender offer to his longtime accountant, Thomas Melvin, Jr., in the course of receiving confidential tax advice. Allegedly, Melvin breached his duties to the board member by trading on the information and tipping four others, including Cain, R. Jeffrey Rooks, and C. Roan Berry. According to the SEC’s 2012 complaint, Cain, Rooks, and Berry also traded on the information and tipped additional individuals. There were eight alleged members of the insider trading ring; four, including Rooks and Berry, settled with the SEC, and the SEC filed a complaint against the other four, including Cain.
According to the SEC, Rooks made only $6,020.39 from his Chattem trades and also provided “cooperation and substantial assistance” to the SEC’s investigation. Yet when Rooks settled with the Commission in 2012, the SEC required him to disgorge $18,482.14, which included his tippee’s profits, as well as prejudgment interest and a civil penalty of $4,620.54. In total, Rooks paid roughly four times his alleged trading profits, over $24,000, to settle with the Commission. Likewise, Berry settled with the SEC before it filed a complaint. He made $41,859 from his Chattem trades. In settling the charges against him, he agreed to disgorge $55,091.95 (the sum of his profits and his tippee’s profits), as well as to pay prejudgment interest, and a penalty of $55,091.51. Press Release, No. 2012-167; Complaint, SEC v. Thomas D. Melvin, Jr., at 22-25. Berry paid more than double his alleged insider trading profits to settle with the Commission.
In contrast, Cain allegedly tipped multiple individuals who together made a profit of over $380,000 and did not cooperate with the investigation, instead choosing to litigate against the Commission for over three years before settling. Nevertheless, Cain was able to limit his liability to just over his own trading profits. This notable result casts some doubt on the value to defendants of cooperating with insider trading investigations and settling early with the Commission.
