SEC Settles Whole Foods/Amazon Insider Trading Case

SEC Settles Whole Foods/Amazon Insider Trading Case

Insider trading has long been a staple of SEC enforcement. While the Division continues to bring insider trading cases, those focusing on retail investors, offering fraud and investment advisers seem to dominate the current landscape. Nevertheless, insider trading cases are being brought. The most recent action centers on the acquisition of Whole Food, Inc. by Amazon, Inc., In the Matter of Tai-Cheng Yang, Adm. Proc. File No. 3-19134 (April 5, 2019).

The fact pattern of this case is a classic for insider trading actions. Mr. Yang is an engineer, married to Wife. She has a close personal relationship with Family Member who had a position through which he obtained material non-public information about corporate transactions.

Amazon and Whole Foods held preliminary discussions regarding a strategic transition in April 2017. The discussions progressed. By June 1, 2017 the two firms agreed that the food market chain would be acquired by Amazon at a price of $42 per share, paid in cash. Due diligence began. Drafting on the merger agreement began. Two weeks later the Whole Food’s board of directors approved the transaction.

After the share price was agreed, but before the Board of Whole Foods approved the transaction, Family Member A spoke on the telephone with Wife. Family Member explained that he would not be able to travel to attend the medical procedure of another family member. During the course of the conversation Family Member A spoke about the Amazon – Whole Foods transaction. It was June 9, 2017.

Following the telephone conversation Wife communicated its substance to Mr. Yang. That included the information regarding the Amazon – Whole Foods transaction. Less than one hour later Mr. Yang purchased 40 Whole Foods call options. The contracts had a strike price of $25 and an expiration date of January 18, 2018. The transaction cost was $47,428.76. Four days later Mr. Yang purchased an additional 10 Whole Foods options contracts. The contracts had the same strike price as the earlier ones and expired in mid-January 2018.

On June 16, 2017 – three days after Mr. Yang’s last option purchase – Whole Foods announced a definitive agreement to be acquired by Amazon. The deal price was about $13.7 billion or $42 per share. The share price of the firm closed up about 29% at $42.68 per share. The value of Mr. Yang’s options increased by about $27,761.55. The Order alleges violations of Exchange Act Section 10(b).

To resolve the proceedings Mr. Yang consented to the entry of a cease and desist order based on the section cited in the Order. He also agreed to pay disgorgement of $27,761.55, prejudgment interest of $1,563.52 and a penalty equal to the amount of the disgorgement.