In SEC v. Epstein, No. 2:15-cv-00506-WB (E.D. Pa. Feb. 3, 2015), the Securities and Exchange Commission (the “SEC”) filed a complaint in the United States District Court of Pennsylvania against Joel Epstein (“Epstein”) for gains allegedly acquired through insider trading. Epstein consented to an entry of final judgment for violations of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”).

The SEC alleged that Epstein learned from his son about the impending merger between Nationwide Mutual Insurance Company (“Nationwide”) and Harleysville Group, Inc. (“Harleysville”) in early September 2011. His son allegedly received the confidential information from his girlfriend, who was a legal assistant for a law firm helping Harleysville with the merger. The complaint described their relationship as one of trust and confidence. Once Epstein acquired this information, the complaint asserted that he told his son, “don’t ever mention this again” and “we never talked.” Complaint ¶ 23 at 4, SEC v. Epstein, No. 2:15-cv-00506-WB (E.D. Pa. Feb. 3, 2015). Epstein also alleged to have informed four other people, who in turn purchased 1,000 shares each.

Epstein acquired 4,000 shares in Harleysville stock. On September 29, 2011, Nationwide announced an intent to “acquire all publicly-traded shares of Harleysville for $60 per share” or approximately $760 million. Harleysville’s stock price rose by 87%. Shortly thereafter, Epstein sold his shares.

Rule 10b-5 under the Exchange Act prohibits anyone from engaging in acts or omissions that result in securities fraud. Epstein consented to an injunction for violations of the provision. The injunction required the payment of disgorgement of $237,014—the total of ill-gotten gains acquired by Epstein and his four tippees’—plus $21,599 prejudgment interest and $237,014 in civil penalties. The SEC’s investigation is ongoing.

The primary materials for this case may be found on the DU Corporate Governance website.