This week, the SEC filed charges against Steven Harrold, who was a Vice President at Coca-Cola Enterprises Inc. The SEC alleged that Mr. Harrold purchased company stock in his wife’s brokerage account after learning that his company had agreed to acquire The Coca-Cola Company’s bottling operations in Norway and Sweden. The SEC claims that Harrold was regularly in possession of sensitive, confidential information as an executive at Coca-Cola, and was also informed of blackout periods during which he was prohibited from trading in the company’s stock. Allegedly, Mr. Harrold purchased 15,000 shares of Coca-Cola in his wife’s brokerage account on the day before the announcement of the transaction with Coca-Cola. The SEC alleged that in the days before the announcement, Mr. Harrold learned confidential information, including that the transaction was internally valued at more than $800 million and was viewed as creating significant positive growth opportunities. See the SEC’s Press Release, here.
The SEC has alleged that Mr. Harrold had a special relationship of trust and confidence with Coca-Cola and that he owed the company a duty of confidentiality. Whether he traded in his own account or his wife’s account, the same duty was owed to the company. Unfortunately, many individuals who receive “blackout” notices because they are in receipt of nonpublic, confidential information and whose stock accounts are sometimes monitored choose to trade for their own benefit in another individual’s account – whether it is a spouse, child or other family member. Just last year, a NASDAQ former executive was accused of making over $640,000 in illegal gains from trading in his wife’s online brokerage account based on pre-release data including earnings and product launches to which he had access. The duty of confidentiality still applies – trading in another individual’s account does not shield that person from potential liability. If an individual receives confidential information and then passes it on to a family member or friend who trades based on this information, the individual may be held liable as a tipper and the family member may likewise be held liable as a “tippee.” Although not confidential information is “material,” or information that is important to a reasonable investor in making his or her investment decision, it’s important to be wary of any trading restrictions or trading while in possession of nonpublic information.