SEC and DOJ Charge Board Member with Trading on Inside Information . . . During a Board Meeting
On Friday, the SEC filed a complaint against James C. Cope, a former member of the Executive Committee of Pinnacle Financial Partners’ (“PFP”) board of directors, alleging that he engaged in insider trading. The same day, Cope pleaded guilty to related insider trading charges brought by the U.S. Attorney’s office for the Middle District of Tennessee. The government alleges that Cope personally traded on information about a pending acquisition that he learned during board meetings, in breach of his duties to the company.
The conduct at issue revolves around PFP’s acquisition of Avenue Financial Holdings, Inc. (“Avenue”). Before the announcement of the acquisition (and while the two companies were negotiating the impending merger) Cope served on PFP’s board. The SEC alleges that Cope was present at board meetings where he and others were briefed in detail about the status of the merger negotiations with Avenue and the importance of keeping those negotiations confidential. In particular, the SEC alleges that he learned that a non-public informal acquisition offer had already been made to Avenue at a substantial premium to its current share price. That day (allegedly while the board meeting was still in progress), Cope bought 6,000 shares of Avenue stock, and bought an additional 4,000 shares of Avenue stock a few days later. When the merger was announced on January 28, the share price rose over 40% resulting in a gain of $56,000 for Cope’s 10,000 share position.
The government has alleged that Cope breached (1) his fiduciary duties to PFP to maintain such information in confidence and to refrain from using that information for personal gain and (2) specific duties imposed by PFP’s insider trading policy. Although Cope has pleaded guilty to criminal charges, the SEC’s complaint seeks disgorgement and civil penalties, along with an order imposing a lifetime bar from Cope serving as a director or officer.
This action serves as an important reminder—the government will move quickly to prosecute directors suspected of insider trading violations, including when a director receives confidential info about a potential corporate transaction with another entity. Although the circumstances in this case seem straightforward, even in cases where the facts are not as clear-cut, the SEC will closely scrutinize any trades connected to officers and directors.