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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.

© 2020 Proskauer Rose LLP. National Law Review, Volume VI, Number 299

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About this Author

Joshua Newville, Proskauer Rose, regulatory enforcement attorney, industry compliance legal counsel, securities exchange commission lawyer
Partner

Joshua M. Newville is a partner in the Litigation Department in New York. His practice focuses on commercial litigation and regulatory investigations. Mr. Newville advises companies and individuals in securities litigation and compliance matters. He also focuses on internal investigations and enforcement matters. Prior to joining Proskauer, Josh was senior counsel in the U.S. Securities and Exchange Commission’s Division of Enforcement, where he investigated and prosecuted violations of the federal securities laws. Josh served in the Enforcement Division’s Asset...

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Sigal P. Mandelker, White Collar Defense Attorney, Proskauer Law Firm
Partner

Sigal Mandelker is a Partner in the New York office. She is a member of the firm’s White Collar Defense & Investigations, Appellate, International Practice, and Privacy Groups. Sigal represents individual and corporate clients in connection with government investigations and prosecutions, including white collar criminal defense, the FCPA, anti-money laundering matters, SEC and related enforcement matters, internal investigations, public corruption, and cyber security. She has a broad range of experience in domestic and international enforcement matters, appellate litigation, congressional investigations, immigration matters, and other legislative and regulatory matters.

212-969-3360
Brian Hooven, Proskauer, Litigation, Expert Witness Qualifications Attorney
Associate

Brian Hooven is an associate in the Litigation Department.

  • Columbia Law School, J.D., 2015 

  • Journal of Law and Social Problems

  • University of Michigan, B.S., 2011

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