Perhaps more importantly, the SEC stated that the valuations were misleading because they failed to reflect or disclose higher valuations by third parties. The SEC argued that the valuations were therefore misleading. The Plan documents stated that the stock’s fair market value would be determined “from time to time as may be necessary for any purpose under the Plan. Stiefel told its employee shareholders that stock purchases would be at “current market value,” yet its valuations were revised only once a year.

The SEC’s allegations paint a picture of duplicity and self-dealing by Stiefel and its CEO. The SEC seeks to bar Stiefel’s CEO from serving as a director or executive officer of a public company, and seeks permanent injunctive relief, financial penalties and the disgorgement of ill-gotten gains from both defendants. The case applies the basic holding of the Texas Gulf Sulphur2 case that companies must “disclose or abstain from trading” when buying shares from shareholders. The SEC alleges a number of other violations, including making misrepresentations to shareholders about the process used to sell the company and failing to update third party evaluations – all for the purpose of increasing the percentage of shares held by the Stiefel family at the time the sale took place. Stiefel, violated Rule 10b-5, and defrauded shareholders by over $110 million, by buying stock from employees at prices that did not reflect the per share prices implied by acquisition offers that Stiefel was receiving from third parties.

Stiefel Laboratories Inc.,1 the SEC alleges that Stiefel and its CEO, Charles W. On December 12, 2011, the SEC announced an enforcement proceeding that serves as a useful reminder that the federal laws against insider trading and misrepresentation apply as forcefully to private companies purchasing stock from employees and other shareholders as they do in the public company setting.

Go pro insider trading