January 11, 2016 / 10:41 PM / in 3 years

UPDATE 1-Jurors in Capital One insider trading case told that 'size matters'

(Recasts with quotes, details from opening statements)

By Suzanne Barlyn

PHILADELPHIA, Jan 11 (Reuters) - A former Capital One Financial Corp analyst accused of using the credit card issuer’s data to illegally trade in stocks relied on only a tiny slice of all information available about those securities, his lawyer told a jury on Monday.

The ex-employee, Nan Huang, did not have a significant advantage over the investing public, despite using the data, said Gregory Morvillo, in opening statements in an insider trading trial in U.S. District Court in Philadelphia.

The Capital One data that Huang and a former colleague, Bonan Huang, obtained about sales at consumer retail and other companies was “not material” when compared to the “total mix” of information available to the investing public about those companies, Morvillo said.

“If I were to show you two pieces of a 200 piece jigsaw puzzle, wouldn’t it be difficult to know what the picture in that puzzle was?” Morvillo said.

The Huangs were targets of a complaint filed by the U.S. Securities and Exchange Commission a year ago, alleging that they made more than $2.8 million from trading on Capital One’s internal data ahead of sales and earnings reports from at least 170 companies from November 2013 to January 2015.

The two were analysts who investigated potential credit card frauds for Capital One. Both are Chinese nationals who lived in Virginia before fleeing to China shortly after Capital One fired them last year.

Bonan Huang settled with the SEC last month, agreeing to cough up more than $4.7 million in penalties and other payments without admitting or denying the allegations.

A finding that nonpublic information is “material” is essential for the government to prove an insider trading case, lawyers say.

Nan Huang, who will not testify at his civil trial, does not deny using Capital One’s data, according to Morvillo, in violation of the card company’s code of ethics.

But he said Capital One’s internal database contained aggregate credit card sales data representing no more than between 1 and 3 percent of total sales at the companies in which Huang invested.

His argument, as he put it to the jury, is that Huang may have sought an inside edge for some of his stock trades, but only a little bit.

“The SEC says that size doesn’t matter,” said Morvillo. “Our position is that size may be the most important thing in this case.”

The case is a test for the SEC after a prolonged period in which it has struggled to win other insider trading cases.

The Huangs made hundreds, if not thousands, of keyword searches on their company’s private database for sales data, the SEC said. Their returns - as much as 13,000 percent - dwarfed those of typical investors and were “significantly better” than many hedge fund managers, SEC lawyer Christopher Kelly told the jury.

The pair, who frequently saved the data on Capital One’s computers, were able to analyze it to determine if a company’s sales were increasing or decreasing on a period basis, the SEC said.

The case is Securities and Exchange Commission v. Huang, U.S. District Court, Eastern District of Pennsylvania, No. 15-269. (Reporting by Suzanne Barlyn in Philadelphia; Additional reporting by Nate Raymond; Editing by Tom Brown)

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