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Business Organizations Keyed to Chasalow, 3rd Ed.
Securities and Exchange Commission v. Yun
Citation:
327 F.3d 1263 (2003)Facts
David Yun, president of Scholastic Book Fairs, Inc., learned that Scholastic Corporation would announce lower-than-expected earnings on February 20, 1997. During the weekend of February 15-16, David discussed with his wife Donna a statement of assets he had provided her in connection with their post-nuptial negotiations. He explained that he had assigned a $55 value to his Scholastic options, although the stock was trading at $65, because he expected the price to drop following the upcoming earnings announcement. David told Donna not to disclose this information, and she agreed to keep it confidential.
On February 18, while in her real estate office, Donna called her attorney to discuss the asset statement. Jerry Burch, a fellow real estate agent, overheard Donna mention the Scholastic information. That evening, Donna and Burch attended a real estate awards banquet together. The next morning, Burch called his broker to purchase Scholastic put options, citing information obtained at a “cocktail party.” Despite warnings from his broker about insider trading, Burch invested $19,750 in Scholastic put options.
After Scholastic announced its lower earnings on February 20, the stock price dropped approximately 40%. Burch sold his put options, realizing a profit of $269,000—a 1,300% return on his investment. The SEC subsequently brought an action against both Donna and Burch for insider trading violations.
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