The SEC announced a partial settlement today in an unusual insider trading case that it brought earlier this year against Bonan Huang and Nan Huang -- two former employees in the fraud department at Capital One Financial Corp. The SEC stated that Bonan Huang had agreed to pay disgorgement, prejudgment interest and a penalty totaling more than $4.7 million to settle the agency's charge that he profited from material inside information about credit card transactions that he misappropriated from Capital One.
Specifically, the SEC alleged in a January 2015 complaint that as part of their jobs, Bonan Huang and Nan Huang had access to a nonpublic database at Capital One
that recorded the credit card activity for millions of customers at numerous, predominantly consumer retail corporations. The Defendants conducted hundreds, if not thousands, of keyword searches of this database. These searches, which were not done in furtherance of their employment duties, allowed the Defendants to view and analyze aggregated sales data for the companies they searched.
Based on these searches, the defendants allegedly obtained sales data related to at least 170 publicly-traded consumer retail companies that allowed them to determine whether a specific company's sales were increasing or decreasing on a periodic basis. Based on this information, the men allegedly purchased call and put options in certain of these companies, resulting in profits of approximately $2,826,500.
In September 2015, the case made additional headlines when U.S. District Judge Mark Kearney ruled that the SEC could not seek discovery of the personal smartphone passwords of Bonan Huang and Nan Huang. Judge Kearney ruled that the personal passwords were not corporate records but were rather "thought processes" protected under the Fifth Amendment.
The SEC noted that the litigation against Nan Huang is still ongoing and is scheduled for trial on January 11, 2016.