In July, federal prosecutors in New York and the SEC charged former Standard & Poor's analyst Rick A. Marano with tipping his brother and a former business partner about the upcoming sale of a company he learned about in his work for the credit-rating agency. Marano's lawyer could not be reached for comment.
Separately, the husband of a secretary at the law firm Skadden, Arps, Slate, Meagher & Flom LLP pleaded guilty and settled civil charges in June stemming from a tip that he passed on to curry favor with a politically connected friend. The tip was information that his wife acquired in her work as an assistant to a lawyer who handled mergers. That friend then shared the information with Gary B. Taffet, the former chief of staff to New Jersey Gov. James E. McGreevey (D). Taffet's lawyer said Taffet did not know that the information improperly came from an inside source and that he would fight the SEC charges on that basis.
Ivan F. Boesky made millions of dollars based on stock tips in the 1980s, a time of frequent mergers and acquisitions.
To win a civil insider trading case, government lawyers must prove that the information was shared in a breach of fiduciary duty and that the person who received the information either knew or should have known it was passed along inappropriately. That legal standard sometimes can be difficult for regulators to meet, SEC enforcement official Thomas C. Newkirk said in a 1998 speech.
"Unless the insider trader confesses his knowledge in some admissible form, evidence is almost entirely circumstantial," Newkirk said.
Defense lawyers in a few noteworthy insider trading cases are signaling that they will push back hard against the SEC's interpretation of the law.
David M. Willey, the former chief financial officer at McLean's Capital One Financial Corp., was charged with insider trading by the SEC in July. Regulators allege that at a time Willey knew the company faced a negative evaluation from bank inspectors, he used company stock as collateral to exercise 87,700 stock options. He also exercised and sold on the open market 60,219 more options in his wife's account, over which he had control. The Willeys made more than $1 million on the sale of her shares, court papers said.
Defense lawyer Richard J. Morvillo of the D.C. law firm Crowell & Moring LLP said he plans to raise the question of why Willey held onto his own shares if he secretly knew negative information suggesting the stock price would go down. "Real inside traders sell to take advantage of the news," Morvillo said.
Lawyers for former Enron chairman Lay have said they will vigorously contest SEC allegations that he broke the law by selling $70 million worth of shares back to the energy company in 2001, at a time, regulators claim, he knew -- but the public didn't -- that Enron's finances were deteriorating. Lay disavows knowledge of the broader fraud at Enron and argues that since the sales were made back to the company and not on the open market, insider trading rules were not triggered. Lay also argues that an additional $20 million worth of sales he made on the open market were part of a long-standing stock sales plan.
Stock sales plans can insulate executives from insider trading charges because the officials may cite the plan as the reason for a particular stock sale, rather than any positive or negative information they secretly possessed.
But SEC lawyers contend that Lay amended his sales plan at a time when he knew Enron was faltering because of billions of dollars in hidden debt. That inside information, regulators say, invalidated Lay's sales plan and exposed him to civil charges.