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Tuesday, July 23, 2024 | Back issues
Courthouse News Service Courthouse News Service

No Misconduct Evidence in 1,000% Profit Trades

CHICAGO (CN) - A Spanish trader may keep the $500,000 he made on potash stock options, a return of more than 1,000 percent, because the SEC cannot prove insider trading, a federal judge ruled.

In August 2010, two Spanish men, Juan Jose Fernandez Garcia and Luis Martin Caro Sanchez bought "relatively risky" stock options in Potash Corporation of Saskatchewan, a company that mines potash, a key ingredient in fertilizer.

Four days later, BHP Billiton acquired Potash, sending its stock price up by roughly 27 percent. Garcia and Sanchez sold their options for a total of nearly $1.1 million, a return of approximately 1,000 percent.

The Securities and Exchange Commission quickly froze both men's assets with an emergency order, alleging that the two engaged in "highly profitable and highly suspicious trading." Garcia consented to a settlement in May 2011 that ordered him to disgorge approximately $575,000 in profits from his Potash trades.

Sanchez, on the other hand, moved for summary judgment, claiming that the SEC failed to connect him to any insider "but instead hangs its hat on bare assertions about 'suspicious' trades."

In his deposition, the trader explained that he bought the options "as an attempt to increase the risk level of his overall portfolio."

Last week, U.S. District Judge Marvin Aspen granted Sanchez's motion, finding that "the SEC is asking us to do two seemingly unprecedented things."

"First, it wants us to rule that a jury could find Sanchez traded on insider information, even though the SEC has no indication that Sanchez knew an insider," he wrote. "Second, it wants us to impose an adverse inference against Sanchez because he trashed a computer, even though the SEC has no indication that there was relevant information on the computer."

Regulators also cannot prove any connection between Sanchez and Garcia.

"The SEC believes that because Sanchez's story is 'too convenient,' we should ignore it," the 30-page decision states. However, "even drawing inferences in favor of the SEC, there is no reason to ignore his testimony."

While Sanchez's explanations may not be wholly convincing, "we cannot address credibility on a motion for summary judgment and it is not necessary to do so, because we are still left with a mere suspicion of insider trading," Aspen wrote.

"The SEC has no shown that Sanchez ever had an opportunity to acquire nonpublic information," he added.

Aspen said the freeze and injunction on Sanchez's assets should be lifted immediately.

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