As a former SEC Senior Trial Counsel now in the defense bar, I am often asked if there is some kind of de minimis exception to securities fraud, especially with respect to insider trading. What, people ask, if I only make a really tiny amount of money? Would the SEC really care? Or be able to isolate a small amount of trading and get the evidence needed to charge?

In a recent case, SEC v Vakil, the SEC answered that question in the affirmative. The SEC charged both an insider who reportedly traded on inside information regarding a planned acquisition by the company where she worked, and a friend to whom she leaked that information.

The SEC alleged that Trijya Vakil (Vakil) and Neeraj Visen (Visen), illegally traded in the stock of Kindred Biosciences, Inc (Kindred). Vakil learned, in the course of her employment at Elanco Animal Health, Inc (Elanco), that Elanco was about to acquire Kindred. She then gave her friend, Visen, advance notice of this news.

Vakil acquired 500 shares of Kindred, while Visen purchased 38,000 shares. When Elanco’s acquisition of Kindred was announced, the price of Kindred shares increased almost 50%, netting Vakil a profit of $2,447.50. Her friend Visen obtained ill-gotten gains of $109,437.

Notwithstanding the relatively low amount of illegal profit by the insider, Vakil was charged both by the SEC and criminally as well. Both Vakil and Visen pleaded guilty to criminal charges in parallel actions brought by the US Attorney’s Office for the Southern District of New York.

Red flags

There are several considerations worth noting here. First, the fact that Vakil was an insider was likely a significant consideration, especially since she participated in the due diligence regarding the Kindred acquisition. Second, Elanco had explicit policies that forbade employees from trading in the securities of other companies if the employee learned material non-public information about those companies pursuant to their employment at Elanco. To buttress these policies, Elanco had training courses that referenced these policies, and Vikal participated in those trainings.

There were other red flags. For example, here Vakil purchased the securities (which she had never bought before) weeks before the acquisition was announced, and sold them the day of the announcement, after the price shot up almost 50%. Visen’s trading pattern was even more of a glaring alarm: he bought the shares the day before the announcement, after getting word from Vikal, his close friend of many years, about the imminent announcement of the acquisition.

Even worse, when the list of persons who traded Kindred stock ahead of the acquisition’s announcement was circulated internally at Elanco as part of a FINRA inquiry, Vakil not only lied about not knowing anyone on that list (including Visen), she then reassured Visen that she had omitted his name in her response. Vakil also lied to the FBI when it called her to investigate the trading. Not only did she pretend that she had no advance knowledge of the acquisition, after the FBI call she reached out to Visen to conspire with him to conceal their illicit activity. All of which should serve as a reminder that in many cases the cover up is worse than the crime.

A cautionary tale

However, at the core of this case lies one predominant fact: the insider’s effort to get away with a small bit of insider trading by only buying and selling a small amount of securities failed to escape the attention of multiple enforcement agencies. This should serve as a cautionary tale for those who think that “just a little securities fraud” will keep them under the enforcement radar.

Many people fail to realize the extent of market surveillance systems in place to monitor anomalous trading patterns around major corporate events, like M&A activity, regulatory approvals, and so on. All trades can be tracked by enforcement agencies, and any buys and sales of securities around market moving conduct, like a corporate acquisition, can be identified and investigated by those agencies.

When it comes to insider trading, even a little is too much.

Howard Fischer is a partner in the litigation and white collar departments of Moses & Singer LLP. Howard is recognized as a leading expert and commentator on securities disputes, enforcement proceedings, and securities regulations, including related to digital assets.

As a former Senior Trial Counsel at the US SEC, he was entrusted with some of the most sophisticated and noteworthy cases that the federal government prosecuted in the last decade.