SEC Alleges Insider Trading by Two Friends in Advance of the Acquisition of The Shaw Group Inc.

On April 3, the Securities and Exchange Commission brought a lawsuit against Walter Wagner and Alexander Osborn, alleging that the two friends realized almost $1 million in profits by illegally trading securities of The Shaw Group Inc. in advance of its acquisition by Chicago Bridge & Iron Company, N.V. 

According to the SEC, Wagner received material, non-public information about the acquisition from his former classmate John Femenia, an associate at a large investment bank, who learned of the transaction in the course of his employment. The SEC alleged that Wagner traded on the tip and purchased Shaw equity and short-term call options, and that Wagner tipped his friend Osborn, who then did the same.   

On July 30, 2012, after Chicago Bridge announced its agreement to acquire Shaw, Shaw’s stock price increased 55 percent over the prior day’s closing price. The complaint asserts that Wagner and Osborn then sold their Shaw equities and call options and reaped profits of $517,784 and $439,830, respectively.   

The SEC alleged that the acts violate Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Wagner agreed to settle by disgorging his illicit profit plus interest, paying a civil penalty to be determined at a later date, and consenting to an injunction against further violations. The SEC litigation against Osborn is ongoing. 

Securities and Exchange Commission v. Wagner, C.A. No. 8:14-cv-01036 (D. Md. Apr. 3, 2014).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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