SEC Announces Settled Insider Trading Action Against Former Director Of Investor Relations
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  • SEC Announces Settled Insider Trading Action Against Former Director Of Investor Relations

    On February 22, 2022, the Securities and Exchange Commission (SEC) announced that John-Michael Havrilla, a former Director of Investor Relations of PAVmed Inc. (PAVmed), a medical device company, had agreed to settle claims of insider trading.  The SEC simultaneously filed a complaint in the Southern District of New York, together with a consent agreement and proposed final judgment wherein Havrilla, without admitting or denying liability, agreed to the imposition of a permanent injunction, civil penalties of $160,230, and a five-year officer or director ban.

    In the complaint, the SEC alleged that three days prior to the public release of PAVmed’s fourth quarter and annual earnings results, Havrilla received a draft copy of PAVmed’s earnings report.  The next day, Havrilla allegedly purchased 227,500 shares of company stock for his personal brokerage account, which was Havrilla’s largest ever single-day purchase of PAVmed stock.  On April 9, after the market closed, the Company released its fourth quarter and annual financial results, which showed a decrease in net loss per share over the prior year.  On the basis of the positive financial news, Pavmed’s stock price rose by 13.6%.  According to the SEC, Havrilla sold 27,500 of the newly purchased shares on the next trading day, and sold the remainder later in the month, for a total profit of $80,115.

    While the allegations against Havrilla are standard insider trading claims, the settlement, which was promptly approved by the Court, was noteworthy in its calculation of penalties.  In insider trading cases, the SEC historically sought disgorgement of the amount of profits, plus a civil penalty equal to the same amount, and pre-judgment interest on the amount disgorged.  The Supreme Court’s decision in Liu v. SEC, 140 S. Ct. 1936 (2020), however, cast some doubt on its authority to seek disgorgement in insider trading cases, and in recent complaints, the SEC has not sought disgorgement in its prayers for relief.  In settling with Havrilla, the SEC nevertheless signaled that they would continue to try to impose the same type of financial impact on insider trading defendants, as they have historically, by calculating the penalty to equal twice the allegedly ill-gotten gains.