I haven’t been a Big 4 auditor in quite some time, which means I haven’t taken any training on handling sensitive client information in quite some time. However, my keen sense of self-preservation tells me that if I were in possession of sensitive client information, the kind of information about, say, an upcoming acquisition, I would not trade the acquisition target’s stock. Also, if you are familiar with Bloomberg columnist Matt Levine’s rules of insider trading, I certainly would not trade short-dated out-of-the-money call options on the acquisition target.
Why? It’s simple: You will get caught. The SEC will be contacting you about your activity. Even if you only told someone about the sensitive client information and they traded on it, the SEC will be contacting them, and your name will come up. You will have a bad time.
Mayank Gupta must’ve slept through PwC’s most recent “Handling Sensitive Client Information” refresher because it’s clear that he ignored all of the things I’ve covered above. He is no longer an auditor with PwC.
The SEC’s complaint alleges that, through his audit work at PricewaterhouseCoopers LLP, Mayank Gupta learned that San Jose, Calif.-based Cavium was making imminent preparations to acquire Aliso Viejo, Calif.-based QLogic Corp. According to the SEC’s complaint, before the deal was announced to the public, Gupta called his cousin-in-law Pushpendra Agrawal, and told him that Cavium was going to acquire QLogic and that QLogic was a “sure thing.” Upon arriving at work, Agrawal bought 200 QLogic call options, based on Gupta’s tip. During his lunch break, Agrawal bought an additional 50 QLogic call options, again based on Gupta’s tip. After QLogic announced that it would be acquired by Cavium through a tender offer, QLogic’s stock rose by more than 9 percent, and Agrawal profited by more than $23,785 from the illegal trades.
I love how the cousin-in-law couldn’t resist; “I’ll just buy 50 more options. Who’s going to notice?”
A PwC spokeswoman provided the following statement: “Mr. Gupta is no longer with the Firm. PwC is committed to safeguarding confidential client information and provides extensive training and education to its people on the importance of maintaining client confidentiality.”
Thanks for tuning in to this latest edition of “Big 4 Auditor Mishandles Sensitive Client Info.” We’ll see you next time.
[SEC]
