Attorney Uses Confidential Info to Complete Insider Trades

The concern for the public’s trust in the legal profession remains a core goal of attorney ethics committees nationwide. Especially with the ease of accessing confidential information, attorney’s protection of client data has truly come into focus in recent years. This week, the Kentucky Supreme Court will decide whether an attorney will be permitted to continue his career in light of allegations that he used confidential client information to complete insider trades. The Kentucky Board of Professional Conduct recommended that the attorney be suspended for two years.

On October 7, 2010, an associate doing “environmental due diligence” for a client company was tasked with exploring whether the company in question should acquire another company through a merger.  However, on October 21st, the potential merger partner disclosed that NASDAQ had de-listed the company because of “noncompliance with a minimum requirement” which apparently threw the merger into flux.

The attorney, who admittedly had three personal accounts for buying and selling stocks, made several trades of newly-listed stock in the ensuing two months and in his 401(k) account through the law firm. He bought nearly 35,000 shares. The day after the merger was made public, the associate sold his shares for a tidy profit of over $50,000.

Thereafter, the bar association entered into an investigation against the attorney and filed a complaint, alleging four separate rule violations.  The board determined that the attorney did, in fact, take confidential information from his client gained through his employment.

Despite his arguments that the stock purchases weren’t made because of the confidential information, the board concluded he bought the stock based on the confidential information he had received and that he knew or should’ve known the uncertainty associated with the deal prohibited him from purchasing the stock. In sum, the board concluded that the attorney’s “dishonest and deceitful actions for his own financial benefit amount[ed] to professional misconduct.”

The hearing is set for May 4, 2016.  Obviously, this situation represents yet another example of why attorneys must keep confidential information confidential, and never use it for their own personal gain.  Even a mere $50,000 gain could end up costing an attorney two years of his career.


1 Comments

  • grannybunny, 4th Wednesday 2016 at 9:18 am

    Reply

    Why would he not be subject to criminal prosecution?


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