SEC Announces Settlement of Insider Trading Lawsuit Against Former Investor Relations Director | Shearman & Sterling LLP
On February 22, 2022, the Securities and Exchange Commission (SEC) announced that John-Michael Havrilla, former director of investor relations at PAVmed Inc. (PAVmed), a medical device company, had agreed to settle allegations of tort insider. The SEC concurrently filed a lawsuit in the Southern District of New York, along with a Consent Agreement and Proposed Final Judgment in which Havrilla, without admitting or denying liability, agreed to the imposition of a permanent injunction. , civil penalties of $160,230 and a five-year sentence. year of prohibition of an officer or administrator.
In the complaint, the SEC alleged that three days before the release of PAVmed’s fourth quarter and annual results, Havrilla received a draft of PAVmed’s earnings report. The next day, Havrilla reportedly purchased 227,500 shares of the company for his personal brokerage account, which was Havrilla’s largest ever purchase of PAVmed shares. 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 from a year earlier. Based on the positive financial news, Pavmed’s share price increased by 13.6%. According to the SEC, Havrilla sold 27,500 of the newly purchased shares the next trading day and sold the rest later in the month, for a total profit of $80,115.
While the allegations against Havrilla are standard insider trading allegations, the settlement, which was quickly approved by the Court, was notable in its penalty calculation. In insider trading cases, the SEC has historically sought restitution of the amount of profits, plus a civil penalty equal to the same amount and prejudgment interest on the amount returned. The Supreme Court’s decision in Liu vs. SEC, 140 S.Ct. 1936 (2020), however, has cast doubt on its authority to seek restitution in insider trading cases, and in recent complaints the SEC has failed to seek restitution in its prayers for redress. In settling with Havrilla, the SEC nonetheless signaled that it would continue to try to impose the same kind of financial impact on insider trading defendants as they always have, by calculating the penalty for it is equal to twice the allegedly ill-gotten gains.
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