"I Am Not Uncertain" -- Former FBI Agent Trainee Pleads Guilty to Insider Trading

Former FBI Agent Trainee Pleads Guilty To Insider Trading Scheme

Damian Williams, the United States Attorney for the Southern District of New York, announced today the guilty plea of SETH MARKIN in connection with his participation in a scheme to trade in stock of Pandion Therapeutics (“Pandion”) based on inside information that he misappropriated from his then-girlfriend, who was an attorney at a major law firm assigned to work on the acquisition of Pandion by Merck & Co. (“Merck”). MARKIN was arrested in July 2022 and pled guilty to securities fraud based on insider trading before U.S. District Judge Edgardo Ramos.

***

In early 2021, SETH MARKIN and BRANDON WONG together made more than $1.4 million in illegal profits by trading in stock based on inside information that MARKIN stole from his then-girlfriend, who was at the time an attorney at a major law firm in Washington D.C. (the “Law Firm Associate”). At the time, MARKIN had been accepted into the Federal Bureau of Investigation (“FBI”) as a new agent trainee, and WONG was a systems analyst at an education company. In February 2021, MARKIN secretly looked through the Law Firm Associate’s confidential work documents, without her permission, and learned that, in a matter of weeks, Merck, a publicly traded pharmaceutical company, was going to acquire Pandion, a publicly traded biotechnology company, for approximately three times the value of Pandion’s share price. MARKIN immediately purchased Pandion stock on the basis of this material non-public information and also told several family members and friends to purchase Pandion’s stock, causing WONG, another friend, and several family members to do so, including Family Member-1, Family Member-2, Family Member-3, Family Member-4, and Friend-1. In text messages, MARKIN assured WONG that he was “not uncertain” that when the “news drop[ped]” about Pandion, the price would “EXPLODE” and they would earn “triple gains.

SEC Cybersecurity Rules Go Live in Days. Companies Still Aren’t Sure What to Expect

Much of the consternation around the cyberattack disclosure rules centers around materiality. While the SEC expects companies to report incidents they deem to have been material within four days of making that determination, critics of the rule say the SEC hasn’t shed much light on what it considers to be material.

Incidents that initially set off alarm bells often turn out to be minor, or far more limited than previously thought, said Ilia Kolochenko, CEO of Swiss-based security company ImmuniWeb. “The problem is you cannot unring the bell,” he said. “We’ve observed several quite awkward and very harmful cases—financially speaking—when companies overdisclosed then made corrections saying, ‘Oh, actually it wasn’t that bad.’”

Ed McNicholas, co-leader of Ropes & Gray’s data, privacy and cybersecurity practice who represents the former CEO of SolarWinds, said the rules could push companies to overdisclose or include inaccurate information about a breach, all in the interest of being proactive to avoid stiff penalties.

“I think the SEC’s efforts are well-intentioned in trying to get more information out to investors, but the SEC lacks the experience with cybersecurity events in large companies to do this effectively at this point,” he said.

SEC’s “Crypto Mom” doesn’t offer unconditional love

Of note: The LBRY decision was “a low moment for the commission,” according to Peirce — “Somehow they got selected as being one of the projects we went after and it was heartbreaking to me to see that company shut down effectively.”

She cited the Impact Theory decision this summer — the agency’s first enforcement action against a non-fungible token (NFT) sale, as being another important moment.

“A lot of people looking at this are saying: ‘Wait a minute, if you took the same theory and applied it in a myriad of other contexts we would have so many things that were securities that this agency would be completely unable to regulate the markets because we’d be regulating chinchillas, Pokémon cards, baseball cards and Beanie Babies.'”

“And that doesn’t make sense,” she says.

“When it comes to crypto, we’re treating it differently than we’ve treated any of these other objects.”

***

How would she know if things are changing: “If we actually acknowledged the lack of regulatory clarity as an institution,” she said, adding that another signal would be the agency working with folks in the industry.

What’s next: Peirce still plans to leave at the end of her term in 2025 to pursue things like beekeeping. “That’s the plan. I haven’t made a lot of headway. I don’t have bees yet.”

Rotten Eggs and Congressional Insider Trading

… Notwithstanding efforts to apply insider trading law to curb this behavior and the enactment of the Stop Trading on Congressional Knowledge (“STOCK”) Act, fortuitous securities transactions by members of Congress continue to occur in connection with headlining national events; it was recently observed with respect to news of the financial collapse of certain regional banks.

While there is scholarly and political support for laws that would effectively ban such rotten egg behavior, this Article proposes that the conduct be regulated under the statute created with rotten eggs in mind – the Securities Act of 1933. The Securities Act creates speedbumps for persons in a control relationship with issuers who want to sell the issuer’s securities in the secondary market. The speedbumps require both public disclosure and broker inquiry. This article asserts that senators and house representatives are in a control relationship with issuers such that they transcend the status of ordinary investor in the securities law regime and must navigate the obstacles established under the Securities Act for such persons before selling their securities in the secondary market. This approach eliminates the legal and evidentiary challenges of insider trading theory, provides a disclosure mechanism that is vastly more effective than that provided by the STOCK Act, and deploys broker-dealers as gatekeepers to ensure that such trades do not undermine the maintenance of fair markets.

Nondisclosure Agreements Get Trickier Under New SEC Scrutiny

In recent months, the U.S. Securities and Exchange Commission has taken a number of actions against companies whose various employment contracts have language that might hold employees back from reporting misconduct to regulators. A watershed moment came in September, when the SEC fined hedge fund D.E. Shaw $10 million.

Startled by the size of the fine, some companies are taking a second look at the confidentiality provisions and nondisparagement clauses in their various employment contracts. In particular, they are trying to determine whether the language might be seen as squelching whistleblower tips, say lawyers who defend companies in whistleblower cases and others representing the informants themselves.

“I think that the commission’s action is having an impact, and I expect there will be more,” said Stephen Kohn, a partner at law firm Kohn, Kohn & Colapinto who represents whistleblowers.

The $900,000 Tomes That No One Really Wants to Read

In this year’s biggest initial public offering, semiconductor designer Arm Holdings raised around $5 billion in September. One mundane task on its path to IPO riches was the prospectus—the lengthy documents required by U.S. regulators for aspiring public companies.

The roughly 200-page document included a description of its business, audited financial statements and boilerplate legal language about the risks of investing in its shares. The company had to navigate arcane Securities and Exchange Commission rules about formatting and get the placement of the banks involved just right on the prospectus cover.

Its team rushed over Labor Day weekend to get it done—despite the fact that almost no one would read it in full. Estimated total cost for drafting and printing: $900,000.

Putting together the prospectus has long been a rite of passage for pre-IPO companies. For years, companies dutifully printed up thousands of copies for bankers to share as they made the rounds drumming up investor interest.

Today, most of those meetings are virtual and companies print far fewer copies. While investors do pounce on newly filed prospectuses, most pluck out the key figures while skimming digital copies. But the most boring book in the world lives on.

Israel investigates possible trading knowledge ahead of Oct 7 Hamas attack

Israeli authorities are investigating claims by U.S. researchers that some investors may have known in advance of a Hamas plan to attack Israel on Oct. 7 and used that information to profit from Israeli securities.

Research by law professors Robert Jackson Jr from New York University and Joshua Mitts of Columbia University found significant short-selling of shares leading up to the attacks, which triggered a war nearly two months old.

“Days before the attack, traders appeared to anticipate the events to come,” they wrote, citing short interest in the MSCI Israel Exchange Traded Fund (ETF) that “suddenly, and significantly, spiked” on Oct. 2 based on data from the Financial Industry Regulatory Authority (FINRA).

MicroStrategy’s Bitcoin Holdings Profit Tops $2B

Business intelligence company MicroStrategy (MSTR) earlier on Monday was sitting on more than a $2 billion profit on its massive holdings of bitcoin (BTC) following the crypto’s rally above $42,000.

Led by then CEO and now Executive Chairman Michael Saylor, MicroStrategy began purchasing bitcoin in August 2020. The company’s most recent purchases took place last month and as of Nov. 30, MicroStrategy held 174,530 bitcoin acquired for $5.28 billion, or an average price of $30,252 each.

US authorities charge Bitwise Industries co-founders for fraud scheme

U.S. authorities on Thursday charged the co-founders of private technology startup Bitwise Industries for their roles in a $100 million fraud scheme, according to federal prosecutors and the Securities and Exchange Commission.

Irma Olguin Jr and Jake Soberal surrendered to authorities on Thursday on charges they conspired to commit wire fraud and took millions of dollars from various businesses and individuals, the U.S. attorney for the Eastern District of California said in a statement. Bitwise filed for bankruptcy protection in June.