PHILADELPHIA (Reuters) - A former Capital One Financial Corp analyst was found liable on Wednesday on civil charges that he engaged in insider trading by using non-public sales data from the credit card issuer to buy and sell stocks.
A federal jury in Philadelphia agreed with the U.S. Securities and Exchange Commission (SEC) that information used by the Capital One ex-employee, Nan Huang, to trade in shares of consumer retail companies ahead of sales and earnings reports was “material.”
The data gave Huang, who earned nearly $1.5 million from the trades, a “significant advantage” over the investing public, SEC lawyers said.
The verdict marked a victory for the SEC, which has suffered a number of trial losses in insider trading cases during recent years, most notably the 2013 verdict clearing billionaire Mark Cuban.
The SEC won 23 of 25 trials involving various securities violations during its 2015 fiscal year. In September, however, a former Wells Fargo & Co trader was cleared of insider trading charges.
Huang did not deny using Capital One’s non-public information, which the company’s policies forbid. The case hinged on whether the sales data was “material,” or gave Huang a significant edge compared to the scope of other information available to the investing public.
The sales information met that definition because, in part, Huang used it to make “calculations that allowed him to project and predict” broader company sales patterns, said SEC lawyer David Axelrod in closing arguments on Wednesday.
“Obviously, we are disappointed in the verdict,” said Gregory Morvillo, Huang’s New York-based lawyer. “We have a fundamental disagreement with the SEC as to materiality, not just as applicable to the facts in this case, but as a matter of law,” Morvillo said in an email to Reuters.
Penalties for Huang, who did not testify, were not immediately clear, but are likely to include a fine and requirement that he return wrongfully earned profits. Lawyers debated on Wednesday before U.S. District Judge Mark Kearney how to calculate those profits. Kearney will rule on penalties in a separate order.
The SEC sued colleagues Nan Huang and Bonan Huang in January 2015 alleging they made hundreds, if not thousands, of keyword searches on their company’s private database for sales data on at least 170 publicly traded companies from November 2013 to January 2015.
According to the SEC, the analysts, both Virginia residents when they worked for Capital One used the information to trade in accounts at numerous brokerages ahead of quarterly sales announcements by the companies.
The Huangs, who are not related, began with a $147,000 investment and together made more than $2.8 million from the trades, a three-year return of 1,819 percent, the SEC said.
Bonan Huang settled with the SEC last month, agreeing to more than $4.7 million in penalties and other payments without admitting or denying the allegations.
Both Huangs, who investigated credit card frauds for Capital One, are Chinese nationals. They fled to China after Capital One fired them last year.
Reporting by Suzanne Barlyn; Editing by Bill Rigby, Bernard Orr