Pillow Talk Leads to Inside Trading Charge
HOUSTON (CN) - A Houston man made $29,000 by trading on inside information about a tech merger that he learned from his attorney-wife, the SEC claims in court.
The SEC sued James Balchan, a 48-year-old IT specialist, in Federal Court.
The SEC does not accuse his wife of wrongdoing.
It says in its complaint that Balchan learned of Texas Instruments' imminent acquisition of National Semiconductor while discussing weekend plans with his wife. She mentioned it because a weekend meeting had been called off due to the acquisition.
"The next morning, Balchan misappropriated the information he learned about the then-secret acquisition from his wife and purchased 2,000 National Semiconductor shares," the complaint states. "A few days later, Balchan purchased another 1,000 National Semiconductor shares."
The Monday after the weekend meeting was canceled, the buyout was announced, at $25 a share. Balchan had bought his shares at about $14, and made $29,000 from it, the SEC says.
Texas Instruments bought National Semiconductor $6.5 billion, in a deal that closed in September 2011.
Balchan learned the inside information and did his trading in the week before the deal was announced, after the close of trading on Monday, April 4, 2011, according to the complaint.
It states: "In early March 2011, a law partner at Balchan's wife's office ('Partner A') began organizing an informal client 'wine and dine' weekend in honor of National Semiconductor's general counsel.
"Partner A, who was close to Balchan's wife and socially acquainted with Balchan, invited both to several of the scheduled weekend events. Partner A also told Balchan and his wife that National Semiconductor's general counsel would be in attendance.
"On or about March 29, 2011, Partner A called National Semiconductor's general counsel. During the call, the general counsel informed Partner A that he was working on National Semiconductor's imminent acquisition and sought the law firm's advice in dealing with certain regulatory issues arising from the deal.
"The general counsel also advised Partner A that, in light of the acquisition, he would need to cancel the upcoming client weekend, which had been scheduled for April 2-3, 2011. Both understood the call to be an attorney-client privileged communication in light of their prior legal engagements and the general counsel's request for regulatory advice.
"Immediately after the call, Partner A advised Balchan's wife that National
Semiconductor's general counsel had canceled the client weekend because of the imminent acquisition. Balchan's wife then shared this information with Balchan in confidence later that night."
"The next morning, Balchan misappropriated the information he learned about the
then-secret acquisition from his wife and purchased 2,000 National Semiconductor shares. A few days later, Balchan purchased another 1,000 National Semiconductor shares.
"After the close of market on April 4, 2011, Texas Instruments issued a press release announcing its acquisition of National Semiconductor for $25 per share, which represented a premium of 76 percent over its then-trading price of approximately $14 per share.
"The next day, National Semiconductor's stock price rose more than 75 percent, closing at $24.06 per share. As a result, Balchan realized more than $29,000 in illicit profits from his National Semiconductor trades."
Balchan either "knew, or was reckless in not knowing" that the information he got from his wife was not public, the SEC says.
It wants him to disgorge the $29,000 and pay a civil penalty for violating the Exchange Act.