District Court Tosses SEC Insider Trading Suit

December 17, 2001 (PLANSPONSOR.com) - A Georgia court dismissed a case the Securities and Exchange Commission (SEC) had brought against a man who bought VeriFone stock based on a takeover rumor his wife had picked up at her job with VeriFone.

After hearing from an intoxicated supervisor that her employer was going to merge with Hewlett-Packard (HP), Amy Goodson, a VeriFone employee, confided to her husband Floyd that her job may be in jeopardy because of the merger.

Using the information, Floyd Goodson, his father, James, and his friend, John Fiser, allegedly bought and traded short-term stock options on VeriFone, betting that within 30 days, the stock would rise from $27 to $30.

The next day, HP announced that it would acquire VeriFone in a stock swap worth more than $1 billion and VeriFone stock prices rose to $47.

The SEC, which spotted the trades when monitoring the stock after the merger, then launched an insider trading investigation of the three men and filed a civil suit, SEC v Goodson, alleging that they violated insider trading laws.

The agency, having approved regulations that say spouses do have a fiduciary duty to keep confidential within the marriage any insider information that they may have received at work, sought to collect the $62,374 in profits made by Goodson, and $146,907 in profits made by Fiser, as well as damages.

Lawyers for Goodson and Davies argued that they traded on a “tip” and not on confidential information, adding that there is no reason to forego trading just because one possesses material, non-public information.

US Senior District Judge Marvin Shoob of the Northern District of Georgia dismissed the case, a move that defense attorneys see as an affirmation that insider trading laws cannot be extended to impose a fiduciary duty on spouses who share information about a public company, according the Fulton County Daily Report.

Nor do federal laws prohibit family members from passing along stock trading tips to each other, according to the defense attorneys

– Camilla Klein                              editors@plansponsor.com