Jury finds former biopharma executive liable for ‘shadow trading’

A federal jury in San Francisco found a former biopharmaceutical executive liable on Friday for “shadow trading,” a novel insider trading theory brought by the U.S. Securities and Exchange Commission. The jury rejected the defense’s argument that the government agency reverse-engineered the case without any evidence of what drove the trades in question. The verdict may significantly impact the scope of insider trading regulations.

The SEC accused Matthew Panuwat of possessing confidential information about his employer, Medivation Inc., and trading in the securities of Incyte Corp., a closely related company. This “shadow trading” theory went to trial for the first time before U.S. District Judge William H. Orrick. Panuwat denied the allegations. His attorneys at Skadden Arps Slate Meagher & Flom LLP and Spertus Landes & Josephs LLP maintained throughout the two-week trial that he was not thinking about any link between the companies when he bought Incyte’s short-term stock options in 2016. They declined to comment after the verdict. Securities and Exchange Commission v. Panuwat, 3:21-cv-06322-WHO (N.D. Cal., filed Aug. 17, 2021).

During his closing statement, Skadden partner Jack P. DiCanio played a video deposition in which Panuwat said he could not recall why he purchased Incyte stock options and said he did not expect Incyte’s stock price to increase in the wake of Pfizer’s acquisition of Medivation. The attorney examining Panuwat in the video asked, “But you don’t recall your specific reasoning for trading, right?”

“See what they’re doing there? That’s a lawyer trying to put words in the mouth of the person on the other side of the question,” said DiCanio, adding that his client was a seasoned trader since high school and tracked the stock market every day. Panuwat has made hundreds of trades and cannot be expected to remember why he made all of them, said DiCanio.

SEC attorney Bernard B. Smyth reminded jurors during his closing argument that Panuwat purchased Incyte stock options seven minutes after learning about Medivation’s acquisition and made $120,000 in illicit profit. “The defense’s explanation, on the other hand, is a story that gets more elaborate and complicated with each telling,” he said.

DiCanio’s argument “ignores coincidence after coincidence” and goes against common sense, said Smyth. He added that the defendant was one of only six Medivation employees entrusted with information regarding the company’s sale and coordinated with investment bankers to oversee the diligence process. Panuwat “traded because of what he knew about Medivation’s impending acquisition and there’s a lot of evidence that that’s what happened … In some cases, things are exactly as they seem,” the attorney said.

However, DiCanio unsuccessfully contended that the SEC was putting unfounded thoughts and ideas into Panuwat’s head and offering them as evidence. “Mr. Panuwat is not a dumb man and if he wanted to hide his tracks, there were other ways to do this,” he said. The attorney also rejected the idea that Medivation and Incyte were similar companies. “That’s like saying all sports are the same. Basketball is very different than bowling, and just because they both use balls doesn’t mean they’re the same sport,” said DiCanio.