SEC Brings First Case Charging Shadow Insider Trading

The SEC's filing of its first shadow trading case earlier this month signals the agency's willingness to pursue actions based on expanded theories of insider trading liability.

In a federal court complaint, the SEC on August 17 brought insider trading charges against Matthew Panuwat, a former business development executive at Medivation, Inc. based on trades he made after learning that the company was going to be acquired by a major biotechnology firm. The case is striking because it alleges not that Panuwat traded in his employer's stock, or in the stock of its anticipated acquirer, but rather that he purchased stock in a company "similarly situated" to Medivation.

The economic reasoning underlying the SEC's action is that Panuwat figured the acquisition of Medivation would also enhance the market value of similar or "shadow" companies. The legal theory of the case is that Panuwat had a duty to Medivation not to use information acquired in his role as a