In April 2013, the SEC settled charges against Richard Bruce Moore (“Moore”) for insider trading with respect to a going private transaction of Tomkins plc, a British engineering and manufacturing firm. Though no hard information as such was apparently transmitted to Moore, the SEC found sufficient facts to charge him with insider trading on a misappropriation theory. Moore did not contest the charges; he disgorged his profits of $163,000, paid a penalty in the same amount and is permanently barred from the U.S. securities industry.
The pertinent facts are that Moore worked for Canadian Imperial Bank of Commerce (“CIBC”) and in that role pitched investment opportunities to CIBC clients, including the Canadian Pension Plan Investment Board (the “Board”). Prior to the Tomkins deal, Moore and his contact on the Board, a Managing Director (the “Managing Director”) worked on one successful going private transaction and another one that ultimately failed. Moore and the Managing Director were friends as well and communicated regularly.
When the opportunity to acquire Tomkins arose, the Managing Director said nothing to Moore about the deal. Moore checked in with the Managing Director periodically, during which he learned that the Managing Director was intensely involved in a deal; Moore of course offered CIBC’s services in connection with the deal, but nothing came of it. Moore also learned that the Managing Director was travelling to and from London with some frequency.
Moore and the Managing Director happened to attend the same charity event, where Moore observed the Managing Director in conversation with someone else. The Managing Director would not introduce Moore, nor identify his companion. Moore later learned from a colleague at CIBC that the Managing Director had been speaking with the CEO of Tomkins. The penny dropped (Moore had also heard rumors of a Tomkins takeover) and Moore ultimately acquired 51,350 Tomkins ADRs on the NYSE as well as common shares on non-US exchanges. Approximately three weeks later, Tomkins announced its acquisition by the Board and a Canadian private equity firm which triggered a 27% jump in the price of its ADRs. Moore sold his position the following day, resulting in the $163,000 profit.
At first blush, one might be tempted into thinking that this is not an insider trading case. Rather, Moore reached a (correct) conclusion based on his experience and analysis of the situation. A close reading of the SEC’s complaint, however, highlights a number of additional facts that support an insider trading charge on the basis of misappropriation:
- Moore was acting in the course and scope of his employment with CIBC; therefore any information he obtained with respect to his clients’ deals belong to CIBC (using such information for personal gain would be misappropriation);
- Specifically, Moore was the Board’s primary access point for business with CIBC and vice versa;
- Moore’s work with the Board focused on going private transactions, similar to Tomkins;
- Moore’s ongoing contact with the Managing Director, as part of his role at CIBC indicated that the Managing Director was increasingly busy and unavailable. The Managing Director declined Moore’s offer to assist in financing the deal. In addition, given the failure of their most recent deal, one wonders whether Moore was worried about ongoing deal flow from the Board;
- The Managing Director’s travels and secretiveness about his deal seems to have reinforced Moore’s belief that a large transaction was about to happen; the big reveal of course being the conversation between the Managing Director and Tomkins’ CEO at the charity event;
- Perhaps most damning is Moore’s consciousness of guilt: he went to great lengths to effect his Tomkins transactions quickly and under the radar, including conducting them through a little used offshore account, rather than his CIBC account. He followed up repeatedly with his broker to make sure that the accounts were ready to trade, and subsequently in making the ADR trade via the NYSE, and common shares on non-US exchanges. At one point, he paid a penalty in order to move additional funds into his trading account. Though he started communications with his broker on his CIBC email, he later switched to personal email.
- In all, Moore invested approximately a third of his net worth on the purchases of Tomkins securities. He sold his entire position the day after the announcement (and resulting price increase).
The SEC’s release and complaint are available on its website.
Though it is clear from these facts that Moore did not innocently trade in Tomkins securities, this case offers a lesson for all market participants that they should be cognizant not only of specific pieces of information that they might receive, but the totality of the circumstances that surround both their businesses and personal trading matters. A moment taken prior to trading to consider all ramifications can make the difference between a long and healthy career in the industry, or permanently barred at 49 years old.