Risk Management

Spousal Abuse: SEC Charges Two with Insider Trading

The commission accuses a former MDS Inc. employee of stealing confidential information about a tender offer and passing it along to his wife, who a...
Stephen TaubJuly 24, 2007

In its fourth so-called “pillow talk” case in two months, the Securities and Exchange Commission has charged yet another couple with illegal insider trading.

In the current case, the SEC accused Shane Bashir Suman, a former employee of Toronto-based medical device maker MDS Inc., of stealing confidential information about the company’s impending tender offer for the shares of Molecular Devices Corp. Along with his wife, Monie Rahman, Suman used that information to trade in Molecular securities ahead of the merger’s public announcement, the commission charged.

The SEC alleged that after Suman learned about secret merger negotiations through access he had to electronic data via his job as an information technology specialist at MDS, he gave that information to Rahman. In the days before the tender offer became publicly known, Suman and Rahman made slightly more than $1 million by trading in the securities of Molecular, according to the complaint.

The SEC said Suman’s job gave him access to a vast amount of secret corporate information. In particular, Suman was able to read the contents of confidential E-mails and other electronic data without detection. Neither Suman nor Rahman couple could be reached at presstime.

For the regulator, the case had a familiar ring. “This is the latest in a growing list of SEC enforcement actions against corporate employees for trading on confidential information about upcoming mergers and acquisitions,” said Linda Chatman Thomsen, director of the commission’s enforcement division. The Ontario Securities Commission brought a separate enforcement action related to the case.

In May, the SEC filed charges against former Oracle vice president Christopher Balkenhol. According to the commission, Balkenhol learned about two sets of secret merger negotiations from his wife, who worked at Oracle as the lead executive assistant to the chief executive officer and two co-presidents. Balkenhol allegedly traded on that information.

The SEC did not allege that Balkenhol’s wife knew about his illicit trades, only that Balkenhol breached a duty not to misuse confidences obtained from her for his own gain. Without admitting or denying the allegations, Balkenhol agreed to pay $97,282 in disgorgement, $4,115 in prejudgment interest, and a $97,282 civil penalty, and to refrain from future violations of the relevant securities laws.

The prior week, the SEC charged former Morgan Stanley employee Jennifer Xujia Wang and her husband, Ruopian Chen, a former employee of ING Investment Management Services, with insider trading for allegedly buying stocks on the basis of material, nonpublic information culled from confidential merger talks. The couple’s attorney said at the time that they intended to plead not guilty to any criminal charges brought and defend themselves against the SEC’s allegations.

The charges against Wang and Chen were handed up on the same day that another former Morgan Stanley executive, Randi Collotta, and her husband, Christopher Collotta, pleaded guilty in one of the biggest insider-trading schemes since the 1980s.

Also at that time, the SEC filed charges against a Hong Kong couple, Kan King Wong and Charlotte Ka On Wong Leung, who allegedly engaged in illegal insider trading before the public announcement of Rupert Murdoch’s $5 billion bid for Dow Jones. An attorney for the couple could not be identified at the time.