Small Gains Yield Big Pain: How a $2,400 Profit Triggered an SEC, FBI, and FINRA Cavalry

The SEC complaint alleges classic tipper-tippee liability under Exchange Act § 10(b) and Rule 10b-5 and seeks injunctive relief, disgorgement with prejudgment interest, civil penalties, and officer-and-director bars. Notably, the complaint emphasizes post-trade conduct: Vakil’s false statement to Elanco during a Financial Industry Regulatory Authority (“FINRA”) inquiry, her inconsistent account to the Federal Bureau of Investigation (“FBI”), and an attempted cover-up call to Visen to get their stories straight — all factors the Commission routinely cites when arguing for higher penalties. The action underscores the Commission’s willingness to pursue individual employees who violate corporate policies, misuse internal code names, and exploit seemingly small “windows” of MNPI. The defendants consented to the entry of judgments against them, with any financial penalties to be determined by the court. The defendants have also pleaded guilty to criminal charges in a parallel action brought with the U.S. Attorney’s Office for the Southern District of New York.

Key Takeaways:

• Code Names Only Go So Far. Elanco had assigned the code name “Project Knight” to the potential acquisition and referred to Kindred as “Knight”. But even the most robust M&A code-name protocols fail if employees do not internalize confidentiality norms. Despite the code names, the SEC alleged that Elanco employees often referenced Kindred by name in emails and other due diligence materials.
• Data Analytics Shorten the Enforcement Fuse. FINRA’s market surveillance identified the suspicious trades quickly, and the routine post-transaction FINRA inquiry quickly involved both the SEC and the FBI. Public companies have to assume that all trading around corporate events will be scrutinized and design pre-clearance programs.
• Post-Trade Conduct Drives Penalty Exposure. The complaint spotlights misstatements to the company, to FINRA, and to the FBI — conduct that often justifies escalating remedies. Counsel should remind personnel that responding accurately to internal or regulatory inquiries is itself a securities-law obligation and the company should be careful not to vouch for information that the company is not in a position to confirm.
• Culture Trumps Training. According to the SEC, Vakil had received training on Elanco’s insider trading policy, including the month before the announcement of the Kindred acquisition. That policy not only prohibited trading Elanco stock while in possession of MNPI, it also prohibited “trading in the securities of another company if you become aware of material, non-public information about that company in the course of your position with [Elanco].”