SEC Uses Facebook to Identify Insider Trading Suspect’s Alleged Source

file000971200943.jpgThe U.S. Securities and Exchange Commission (SEC) has frozen the assets of a Thai man after filing a complaint alleging insider trading. The civil complaint, filed in a Chicago federal court, charges the man with one count of violating the Securities Exchange Act of 1934, 15 U.S.C. §§ 78a et seq., and SEC regulations. SEC v. Rungruangnavarat, No. 1:13-cv-04172, complaint (E.D. Ill., Jun. 5, 2013). The court granted an ex parte order freezing the defendant’s assets while the case proceeds, and ordered the defendant to repatriate certain funds to the U.S.

The case involves a large purchase of call options, single-stock futures, and stock in Smithfield Foods, Inc., a publicly-traded Virginia-based pork company. The defendant, a 30 year-old plastics company employee in Bangkok named Badin Rungruangnavarat, opened a brokerage account with Interactive Brokers (IB) on May 10, 2013. According to the SEC’s complaint, between May 21 and May 28, he purchased about 3,000 “out-of-the-money” call options, 2,580 single-stock futures, and 100 shares of stock in Smithfield. This represented a huge share of the market during that period.

On May 29, 2013, Smithfield announced publicly that the Chinese company Shuanghui International Holdings was going to purchase it for $4.7 billion. The opening price of Smithfield’s stock that day was almost twenty-five percent higher than at closing the previous day. Rungruangnavarat had unrealized gains of more than $3.2 million, a return on his original investment of about 3,400 percent. He asked to withdraw more than $3 million from his IB account on June 3, which is about when the SEC stepped in.

In its complaint, the SEC accuses Rungruangnavarat of violating Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5. These laws prohibit the use of “any manipulative or deceptive device or contrivance” that violates SEC rules in the purchase or sale of securities. This includes trading based on inside information, meaning information that has not been formally released to the public, about an event likely to affect a stock’s price. The SEC alleges in its complaint that Rungruangnavarat was tipped off about Smithfield’s announcement by a Facebook “friend,” a former co-worker at the plastic company who is currently the associate direct at a Thai investment bank. That bank was advising Charoen Pokphand Foods, a Thai company that explored a competing bid to purchase Smithfield. The SEC must still prove that Rungruangnavarat actually received inside information from this or another source, but many such cases often focus more on asset seizures.

In an ex parte order granted the day the SEC filed its complaint, a judge authorized the freezing of Rungruangnavarat’s assets held by IB. The order also directs the defendant to repatriate any funds covered by the freeze order held in foreign financial institutions beginning May 1. This is not exactly the same as a seizure, as the government may not take actual possession of the funds at this time, but it is functionally the same for the defendant.

The U.S. Constitution prevents the government from conducting searches, making arrests, or seizing property without probable cause and a warrant. Police, prosecutors, and courts must respect this right at all times, and defendants in criminal cases should consult an experienced criminal defense attorney in order to ensure their rights are secure. Michael J. Brown has fought for the rights of west Texas defendants in criminal cases for more than twenty years. To schedule a confidential consultation to discuss your case, contact us today online or at (432) 687-5157.

Web Resources:

SEC v. Rungruangnavarat (PACER registration required), No. 1:13-cv-04172, U.S. District Court, Easter District of Illinois
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Photo credit: ameenullah from morguefile.com.