Stealing of Insider Information

In most insider trading cases, the wrongdoers were the listed company’s directors and senior management. However, IT specialists who have the access right to sensitive information should not be ignored.

US SEC recently filed insider trading charges against a former MDS Inc. employee who allegedly stole confidential information about MDS's impending tender offer for the shares of Molecular Devices Corp. (Molecular) and, along with his wife, used that information to trade in Molecular securities ahead of the merger's public announcement.

SEC alleges that Shane Bashir Suman, of Toronto, learned about secret merger negotiations through access he had to electronic data in his job as an information technology specialist at MDS, then gave that information to his wife, Monie Rahman. In the days before the tender offer became publicly known, Suman and Rahman made just over US$1m by trading in the securities of Molecular.

Suman's job gave him access to a vast amount of secret corporate information. In particular, he was able to read the contents of confidential e-mails and other electronic data without detection. For example, the circumstances in which Suman was called to restore an electronic document on Jan. 23, 2007, the day before he and his wife started trading, suggested the code name for the MDS-Molecular merger and the sensitivity associated with that project. Later that day, Suman conducted internet searches for both that code name and for "Molecular Devices". Just after running those searches, Suman called Rahman and spoke to her for 100 minutes, much longer than their phone records indicate they usually spoke.

Between 24 Jan and 26 Jan 2007, Suman and Rahman bought 12,000 Molecular shares and 900 Molecular call options. Brokerage account records indicate that a portion of the Molecular securities purchases were financed with a margin loan of approximately US$200,000, and the couple previously did not have a position in Molecular securities. On 29 Jan 2007, MDS and Molecular jointly announced the tender offer for Molecular's shares. The stock price immediately rose from almost US$24 to roughly US$35, making Rahman and Suman's trades worth more than US$1m.