The SEC sometimes conducts and relies upon polygraph tests when investigating insider trading? I have no idea if that is actually true--I certainly never saw that happen when I was at the SEC in the 1990s and I don't recall hearing about the SEC using polygraph tests in the years since. But according to an article today in the Atlanta Business Chronicle, the SEC asked to administer a polygraph test to a person it was investigating for insider trading.
O January 9, 2012, the SEC sued an Atlanta, Georgia entrepreneur named Pete Petit. The SEC alleges that Petit shared inside information with a friend about the imminent sale of Matria Healthcare, where Petit was chairman and CEO. Petit's friend allegedly made $94,000 by trading on the inside information. Petit is not alleged to have made any money from the trading, and denies sharing inside information.
The Atlanta Business Chronicle reports that Petit's attorney, Aaron Danzig, says he "gave the SEC results of the expert's polygraph test as specific evidence that Mr. Petit was truthful in stating he did not provide inside information, and that the SEC's claims are groundless.” Danzig says that the SEC then
asked Petit to submit to a second polygraph test that it would conduct. Petit agreed on the condition the SEC decline any enforcement action after he passed the second test. The SEC then sued Petit.
I am not surprised that from time-to-time, potential SEC defendants might offer to sit for polygraph tests. I just had no idea that the SEC ever took people up on such offers or actually conducted/supervised such tests. Can any SEC enforcement alumni or current SEC employees shed any light on this? Is taking an SEC-administered polygraph test actually on the menu of options for potential SEC defendants?