On April 5, 2024, a federal jury in California returned a verdict against Matthew Panuwat—the former head of business development at a biopharmaceutical company—for insider trading in the first "shadow trading" case brought by the SEC. Panuwat marks the SEC's first enforcement action against a corporate insider for using material nonpublic information ("MNPI") about the insider's company to trade in securities of another comparable company. 

According to the SEC, Panuwat received an email from his company's CEO containing MNPI that a large pharmaceutical company would be finalizing a deal to acquire Panuwat's company in the near term. Less than 10 minutes later, Panuwat purchased call options in a comparable mid-cap oncology-focused biopharmaceutical company, which was one of only a limited number of companies in the acquisition target's industry. After the acquisition became public, the stock price of the comparable company increased and Panuwat earned more than $100,000 on his call options. The SEC argued Panuwat breached a duty of trust and confidence to his company. Panuwat had signed a confidentiality agreement that restricted him from using company confidential information for his personal benefit. His company's insider trading policy also prohibited employees from trading in the securities of another publicly traded company based on MNPI obtained through employment.   

Panuwat argued before trial that to establish insider trading under a misappropriation theory, the SEC had to prove that he breached a fiduciary duty to his employer not to use his employer's confidential information to purchase securities in the third-party company. The court disagreed and instructed the jury that the SEC needed only prove that the employer entrusted Panuwat with confidential information that he used to purchase securities without disclosing that use to his company and gaining his employer's consent. 

Following the conclusion of the eight-day trial, it took the jury only a few hours of deliberation to find Panuwat liable under the civil misappropriation theory of insider trading. In the coming days, it is likely that post-verdict motions are filed as well as an appeal. Depending on the outcome, the SEC and the Department of Justice may be encouraged to pursue "shadow trading" cases. Companies should ensure that their policies provide clear guidance about which trading activities are not permitted based on MNPI obtained through employment.