Using Blue Sheet Data in Insider Trading Actions
The U.S. Securities and Exchange Commission (SEC) alleged that an individual Defendant had pin insider trading in the stock of Green Mountain Coffee Roasters, Inc.1
FTI Consulting was retained on behalf of an individual Defendant who was alleged to have engaged in insider trading in the stock of a company that produces and sells coffee, teas, and other beverages. To prove that the Defendant improperly made use of material, non-public information, the SEC had to demonstrate that: 1) the Defendant breached a fiduciary duty or other relationship of trust and confidence; 2) the information was non-public and material; and 3) that the Defendant entered into transactions based on this information. In this particular case, the SEC was able to document that the Defendant had access to insider information but could not demonstrate that he had acted on that information. In order to fill this gap in its case, the SEC asserted that the Defendant’s illegal actions could be “inferred” from direct observation of his trades (i.e., the Defendant had repeatedly taken winning positions in advance of earnings announcements).
FTI Consulting's analysis conclusively showed that thousands of non-insider investors were taking the same types of positions as the Defendant during the relevant time period. We showed that it was not possible to “infer” the use of material, non-public information simply by direct observation of the Defendant’s trades. At trial, the jury relied on the testimony of FTI Consulting’s expert and ultimately found in favor of the Defendant on all charges.
This case was published in the Florida State University Business Review, linked at the end of the article.