SEC Charges Two with Insider Trading In Herbalife Ltd. (HLF)

The Securities and Exchange Commission (SEC) filed insider trading charges against two people in connection with the announcement of Bill Ackman about Herbalife Ltd. (NYSE:HLF) on December 20, 2012.

At the time, Ackman announced that his hedge fund, Pershing Square Capital Management took a $1 billion short position on the shares of Herbalife Ltd. (NYSE:HLF) due to its negative perspective about the company. Ackman’s firm believed that the company is operating a pyramid scheme.

Herbalife LTd. HLF
Herbalife LTd. HLF

Two people learned about Pershing’s plan about Herbalife

The SEC said Filip Szymik of New York City and Jordan Peixoto of Toronto engaged in insider trading in the shares of Herbalife Ltd (NYSE:HLF).

According to the commission, Szymik learned about the plan of Pershing Square Capital Management to announce its negative view about Herbalife Ltd (NYSE:HLF) from his roommate who was former analyst of the hedge fund.

Szymik shared the information to Peixoto, who acquired put option on the shares of Herbalife Ltd. (NYSE:HLF) on December 19, one day prior to the public announcement of Ackman’s firm. The commission said Peixoto made $47,100 in illegal profits from the trading.

In a statement, Sanjay Wadhwa, senior associate director of the regional office of the SEC in New York said, “Szymik and Peixoto chose to engage in illicit tipping and trading in advance of the announcement of market-moving information and today they are being held accountable for those offenses.”

SEC’s order

Based on a settled order, the commission found that Szymik violated the antifraud provisions of the federal securities laws and SEC rules. He was ordered to pay a civil penalty of $47,100 and to cease-and-desist from further violations.

On the other hand, the SEC implemented a cease-and-desist proceedings against Peixoto based on its litigated order to determine whether he violated the Section 10(b) of the Exchange Act and Rule 10b-5. The commission will also determine what relief is appropriate against him.