Legal Alerts

Expansion of Insider Trading Enforcement: The Case of ‘Shadow Trading’

Atlanta, Ga. (April 8, 2024) - In a landmark case, a jury has found a biotech executive guilty of insider trading for betting on a competitor’s stock, leveraging confidential information from his own company. This verdict marks a significant broadening of insider trading law, which is traditionally focused on misuse of nonpublic information related to one's own company or tipping others to do so.

Matthew Panuwat, while serving as the head of business development at pharmaceutical company Medivation, acquired call options in Incyte Corporation, anticipating a rise in their value following the announcement that Pfizer was set to acquire Medivation. The Securities and Exchange Commission (SEC) led the case, highlighting it as a straightforward instance of insider trading, despite Panuwat's novel strategy of trading on a correlated stock rather than his own company’s.

This case highlights the SEC's aggressive approach towards "shadow trading," where individuals are accused of trading stocks based on inside information, not within their own companies, but in closely associated ones. This broadens the interpretation of insider trading laws to include actions beyond the direct buying or selling of a company's stock by insiders. The jury's decision after an eight-day trial demonstrates that insider trading laws may cover a wider range of actions. It raises questions about the boundaries of this theory, particularly regarding how it applies to companies within the same industry or trade group. For instance, could someone be liable for trading in shares based on inside information about a publicly traded hardware store, given that both sell similar products like hammers and saws?

Defense arguments, such as the defendant's claimed ignorance of the policy against trading on nonpublic information and the public nature of the Pfizer and Medivation deal, failed to prevent the verdict. It remains uncertain if there will be an appeal. The novelty of the shadow trading theory makes it a prime candidate for legal challenges. The SEC aims for a significant penalty to deter future violations and considers barring the defendant, Panuwat, from executive positions in public companies.

This case signals to legal practitioners and clients alike the necessity of understanding and complying with insider trading laws, even in less direct scenarios. It highlights the importance of corporate policies against trading on material nonpublic information and the consequences of their violation.

For companies and individuals alike, this verdict serves as a crucial reminder of the expanding reach of insider trading enforcement, urging a reevaluation of compliance policies and trading practices to navigate this evolving legal landscape.

Key Takeaways:

  • Expansion of insider trading enforcement to include "shadow trading."
  • Importance of adherence to corporate policies regarding trading on nonpublic information.
  • Necessity for companies to review and possibly update compliance and trading policies in light of evolving legal interpretations.

Should you have any questions or require further clarification on how this may affect your business practices, please do not hesitate to contact the author or editor of this client alert. For further information on our capabilities in this area, visit our SEC Enforcement & Litigation and Government Investigations & White Collar Defense Practice pages.


Steven Lee, Partner and Vice Chair of Government Investigations & White Collar Defense Practice


Paul Kisslinger, Partner and Chair of SEC Enforcement & Litigation Practice

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