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Exec accused of 'shadow trading' says case stretches law

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  • SEC accused Matthew Panuwat of insider trading ahead of merger
  • Trades were in the same industry, not the deal participants'
  • He argues novel case violates due process, should be tossed

(Reuters) - A pharmaceutical executive said the U.S. Securities and Exchange Commission stretched insider trading law when it sued him over trades in an outside company, asking for the case to be dismissed.

Matthew Panuwat, a former business development executive at Medivation Inc, called the lawsuit an attempt to "improperly expand existing insider trading law to punish innocent conduct without a valid legal basis or fair notice to market participants" in a motion to dismiss the case filed in San Francisco federal court on Monday.

A spokesman for the SEC declined to comment.

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A research paper published in The Accounting Review last year coined the term "shadow trading" to describe the phenomenon of insiders with non-public information trading in competitors' or supply chain partners' stock to evade insider trading prohibitions.

Panuwat said in his motion that the case against him was the first time the SEC ever announced that such activity constitutes insider trading, violating his right to due process.

The regulator sued Panuwat in May, alleging that, in 2016, he used internal knowledge of Pfizer Inc's plan to buy Medivation Inc to bet on the stock of fellow pharmaceutical company Incyte Corp.

Panuwat had signed Medivation's insider trading policy, which barred trading in "securities of another publicly traded company, including all significant collaborators, customers, partners, suppliers, or competitors" based on inside information about Medivation, the SEC alleged.

The agency claims Panuwat engaged in insider trading when he bought call options in competitor Incyte's stock before the Pfizer deal went public. The lawsuit seeks a fine and to prohibit him from serving as an officer or director of a publicly traded company.

But Panuwat argued Monday that the case is legally deficient for not saying how Medivation's acquisition could be material information about Incyte, how he breached his duty to his employer by trading in an "unrelated" company, or how he acted with intent to defraud his employer when he made the trades from his work computer.

The case is SEC v. Panuwat, U.S. District Court, Northern District Of California, No. 21-06322.

For Panuwat: Jack DiCanio of Skadden, Arps, Slate, Meagher & Flom

For the SEC: Marc Katz, David Zhou and Tracy Combs

Read more:

SEC accuses pharma exec of 'shadow trading'

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Jody Godoy reports on banking and securities law. Reach her at jody.godoy@thomsonreuters.com

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