On April 5, 2024, after an eight-day trial, a jury found Matthew Panuwat liable for violating insider trading laws. [1] Commenting on the Securities and Exchange Commission’s victory, Gurbir Grewal, the agency’s Director of the Division of Enforcement stated:

“As we’ve said all along, there was nothing novel about this matter, and the jury agreed: this was insider trading, pure and simple. Defendant used highly confidential information about an impending announcement of the acquisition of biopharmaceutical company Medivation, Inc., the company where he worked, by Pfizer Inc. to trade ahead of the news for his own enrichment. Rather than buying the securities of Medivation, however, Panuwat used his employer’s confidential information to acquire a large stake in call options of another comparable public company, Incyte Corporation, whose share price increased materially on the important news.” [2]

As we noted in Shadow Trading Case Heads to Trial, the widely-followed case was the SEC’s first enforcement action brought on the theory of “shadow trading,” a type of illegal insider trading in which material non-public information (“MNPI”) from one company is leveraged to execute a transaction in the securities of a second company whose share price is predictably correlated to the disclosure of the MNPI. [3]

Critics of the SEC’s position have raised concerns over the scope of shadow trading liability, with the Investor Choice Advocates Network claiming that the SEC’s shadow trading theory risks “creating numerous industry-wide and/or sector-wide trading blackout periods.” [4]

While the Court rejected these arguments in pre-trial briefing, [5] Judge William H. Orrick will have another opportunity to consider the legal boundaries of shadow trading.

Panuwat Moves to Overturn Verdict

Promptly after the jury returned its verdict, Panuwat filed a motion for judgment as a matter of law, focusing in part on the aspect that has the potential to affect the widest range of market participants, the connection between: (1) news of the acquisition of Panuwat’s employer, Medivation; and (2) the share price of Incyte, another publicly traded pharmaceutical company. [6]

Panuwat’s motion asserts that the SEC’s evidence linking his trading to the MNPI [7] amounted to two showings, the timing of the trade (seven minutes after an email confirming the acquisition) and a series of analyst presentations that identified Incyte as a Medivation industry peer. [8] Panuwat claims that this fails as a matter of law to demonstrate scienter because the jury could not draw the inference of Panuwat’s intent without resorting to an unacceptable “series of speculative inferences.” [9]

This motion will offer the Court an occasion to articulate a standard for determining whether and the extent to which unrelated securities issuers are “linked” for purposes of shadow trading liability. We expect that this case of first impression will lead to a more definitive statement from the Ninth Circuit in the months to come.

The case is Securities and Exchange Commission v. Panuwat, Docket No. 3:21-cv-06322 (N.D. Cal. Aug 17, 2021).

[1] Secs. & Exchg. Comm’n v. Panuwat, Dkt No. 3:21-cv-06322 (N.D. Cal. Aug 17, 2021).

[2] G. Grewal, Statement on Jury’s Verdict in Trial of Matthew Panuwat, Secs. & Exchg. Comm’n (Apr. 5, 2024) available at https://www.sec.gov/news/statement/grewal-statement-040524.

[3] See Shadow Trading, M. Mehta, D. Reeb & W. Zhao, Accounting Rev. (2021) 96 (4): 367-404.

[4] Dkt. No. 81 at 7-8.

[5] Sec. & Exch. Comm'n v. Panuwat, No. 21-CV-06322-WHO, 2023 WL 9375861, at *3 n.4 (N.D. Cal. Nov. 20, 2023).

[6] Dkt. No. 158.

[7] Panuwat’s motion also contests the jury’s conclusion that the news of the acquisition was non-public. Id.

[8] Dkt. No. 158 at 11-12.

[9] Id. (quoting Lakeside-Scott v. Multnomah Cnty.,556 F.3d 797 at 802 (9th Cir. 2009)).