Using ETFs to Conceal Insider Trading

On August 17, 2021, the Securities and Exchange Commission (SEC) filed the first lawsuit charging insider trading in an economically related stock. A former employee of Medivation (MDVN, a mid-sized biopharmaceutical company) was charged for trading on confidential information about the acquisition of MDVN at a significant premium. However, unlike a typical case of insider trading, the former employee did not trade shares of MDVN. Instead, prior to the release of this price-sensitive information, the insider purchased short-term, out-of-the-money options in Incyte (INCY), a related mid-sized biopharmaceutical company.

This trading is alleged to have breached MDVN’s insider trading policy and … Read more