Can Planning a Wedding Send You to Prison for Insider Trading?

In Securities Fraud, United States Supreme Court by Joseph Pull

Insider trading – in rough terms, using a company’s confidential information to make money trading its stock – is a well-known white-collar crime. In some instances, insider trading is pretty obvious. The Department of Justice alleges a doctor running a clinical trial of a drug for a company sold his stock in that company after learning (confidentially) that there were problems with the clinical trial. The doctor avoided $160,000 in losses after the clinical trial problems became public and the price of the stock declined. If the DOJ’s allegations are true, there was insider trading. Or the former chairman of a large company says he sold secret information about his company to an investor who used that information to trade the company’s stock. If that was their arrangement, it was likely an insider trading conspiracy. Other purported insider trading cases are less clear-cut. Stock analysts and investors spend a lot of time trying to find information that will help them predict whether a stock’s price will go up or down. That’s perfectly legal. They cross a red line if they obtain confidential (“non-public”) information from a company insider for the purpose of trading stocks, a practice sometimes called “tipping.” (The “tipper” gives secret information to the “tippee.”) But a grey area exists in the law when friends, colleagues, business associates, or even perfect strangers (perhaps a stock analyst) obtain information from a company employee that the employee does not intend to be used for trading. In another case, the Department of Justice prosecuted Sean Stewart, a former JPMorgan vice president, for allegedly participating in an insider trading scheme as a “tipper.” The government claimed information Sean gave his father, Bob Stewart, was used by Bob and a friend of Bob to make $1 million in the stock market. Sean testified that he did not tell his father anything for …

False Claims Act: the “Implied False Certification” Theory Gets More Definition

In Fraud, United States Supreme Court by Joseph Pull

The False Claims Act, or FCA, became federal law in 1863, in response to fraud by Civil War contractors providing (or not providing) goods for the Union war effort. More than 150 years later, the courts are still resolving big questions about its meaning. The FCA[1] creates punishing civil liability — including triple damages — for companies or individuals who submit “false or fraudulent” claims to the United States government.[2] It has a qui tam provision,[3] meaning an individual (called a “relator”) who discovers a violation of the FCA may sue the violator on behalf of the federal government. If the violator is found liable, the relator receives 15-30% of the proceeds of the lawsuit.[4] If an FCA violator is a large company, the amount at stake in a qui tam lawsuit can be very large. In 2009, a pharmaceutical company paid $1 billion to settle FCA claims concerning one of its drugs, yielding total qui tam payments of more than $102 million to six whistleblowers. That case was unusual. But FCA cases where the amount in controversy exceeds $1 million occur with some frequency. In another 2009 lawsuit, for example, three hospitals in St. Paul, Minnesota agreed to pay $2.28 million to settle an FCA claim. And in 2011, a Minnesota company agreed to pay $23.5 million to resolve an FCA claim. The two relators in that case received total payments of more than $3.96 million. With such high stakes, court decisions affecting the FCA, such as the June 16, 2016 Universal Health Services, Inc. v. Escobar[5] decision of the United States Supreme Court, can have big consequences. The specific issue in Escobar was the “implied false certification” theory.