| Some insider trading hypotheticals. Let’s say you have cancer. A publicly traded biotech company has a promising drug in development to treat your cancer. It is conducting clinical trials of this drug. Your doctor suggests that you should try to sign up for the trial. You do. The drug works and your cancer is cured. The company has not yet released the results of the trial. You have a data point — your own experience — and you think the drug is great. You buy some short-dated out-of-the-money call options on the company’s stock. A week later, the company releases the trial results, which are excellent; the drug works. The stock shoots up and you make a ton of money on the call options. Is this illegal insider trading? Well. A few points: - Nothing here is legal advice.
- In general, the experience of “I used a company’s product and I liked the product so I bought the stock” is totally fine and normal. That’s how lots of people get into trading stocks: They like their iPhone or their Tesla, they think “man people do not fully appreciate how good this product is,” they buy Apple Inc. or Tesla Inc. stock. (Or there is the popular hypothetical, “Is it insider trading if I bought Boeing puts while I am inside the wrecked airplane?”) If you like your cancer treatment, you might apply a similar thought process.
- On the other hand, clinical trials of drugs are intuitively more secret than an iPhone. When you signed up for the trial, you might have signed something saying, like, “I will keep the results of this trial confidential.” The way US insider trading law works is that you can generally trade on your own private information (“I like this iPhone”), but you can’t trade on information that you misappropriated from someone else. Does the drug company own the information about your trial? Do you have an obligation to keep it confidential?
- Is anyone really going to come after you? For making a little money on your own cancer cure? Seems like a sympathetic case.
Let’s change the hypothetical a bit. Now, instead of being a cancer patient, you’re a cancer doctor. You are aware that a publicly traded biotech company has a promising drug in development and is conducting clinical trials. You have a patient who might benefit from the drug. You call up the company and say “hey can my patient join your study?” Patient joins, drug works, and you trade. This feels a little worse, no? This is less like trading on your experience, and more like trading on someone else’s information. And you’re not a cancer patient, so you’re a little less sympathetic. Still. You have specialized expertise — you are a doctor, you have knowledge about what treatments work — and maybe you should be able to trade on it. Another modification. You are a doctor, there’s a drug, you have a patient. You call the drug company to ask about getting your patient into the study. But you are a careful and responsible doctor, and you don’t want to sign your patient up for a drug that doesn’t work or that has lots of terrible side effects. So you ask some questions first. “How’s the trial going so far,” you ask. “Does the drug seem to be working? Are there terrible side effects?” The company can’t exactly give you definitive answers — it doesn’t know if the drug works; that’s why it’s doing a trial — but it cares about your patient’s well-being and might try to give you some useful information. “So far it seems to work really well with no side effects, though of course we can’t tell you anything for sure until the trial is complete,” the company might say. If it tells you that, and you buy call options on its stock, is that illegal? Seems kinda bad? Here, surely, the company at least expects — and probably explicitly demanded — that you agree to keep the information confidential and use it only for your patient’s treatment, not for profit. (Your patient probably has a similar expectation.) Seems pretty sketchy to get the information and use it to trade call options. A few further refinements: - What if you don’t have a patient who might benefit from the drug? You just pretend to, so you can get on the phone with the drug company and get some inside information to trade call options.
- What if you’re not actually a doctor?
- What if the information that you get from the company is not market-moving enough, so you just write up fake results for the drug trial, leak them, and make money on your call options when the stock goes up in response to the fake results?
Last week the US Securities and Exchange Commission brought a wild assortment of market manipulation and insider trading charges against three brothers named Muhammad Saad Shoukat, Muhammad Arham Shoukat and Muhammad Shahwaiz Shoukat, as well as some of their friends. For instance: The complaint alleges that the Shoukat brothers manipulated the securities of Olema Pharmaceuticals, Inc and Opiant Pharmaceuticals, Inc. According to the complaint, in the scheme involving Olema, Saad and Arham Shoukat impersonated physicians to steal confidential information about Olema’s clinical trials and then stole the identities of metastatic breast cancer patients on online patient forums to publish falsified clinical trial results that increased Olema’s stock price.
From the complaint: In July and August 2021, Saad, or another impostor acting at his direction, representing himself as Dr. Joseph Garza (“Imposter 1”), called one of the OP-1250 clinical trial sites multiple times. … Imposter 1 claimed that he was interested in exploring whether one of his patients was eligible for the clinical trial. Imposter 1 sought preliminary clinical trial results, including very specific questions about “PK” data, a key marker of whether, after ingestion, OP-1250 had sufficient exposure to a cancerous tumor to be effective. In early November 2021, Saad, or another imposter acting at his direction, and using the name Dr. Safqat Anwwar (“Imposter 2”), emailed and called one of the clinical trial sites, pretending to be a physician seeking admission to a clinical trial for a purported Pakistani breast cancer patient named Shahida. Using another of the Saad-controlled Email Addresses (anwaar@ackermancancercenter.org), Imposter 2 also sent purported medical records for “Shahida” to the Clinical Research Coordinator, who then passed them on to a study coordinator and physician for eligibility screening. Imposter 2 spoke with at least three members of the clinical trial staff, asking questions about toxicitis and responses to the OP-1250 trial. Imposter 2 also requested, and an unwitting staff member sent to the Anwaar Email Address, a copy of the updated confidential OP-1250 clinical trial protocol, detailing the study design and procedures. The OP-1250 protocol materials included the warning that the protocol “may only be used for evaluating or conducting clinical investigations” and “must not be disclosed to any other party.” Honestly a clever sort of insider trading, but in the event they allegedly did not use what they learned to trade, and it’s not clear whether they learned anything valuable. Instead they allegedly just made up other, better information: Between November 15 and 18, 2021, Saad and Arham deceptively obtained access to user accounts on two online breast cancer patient forums and used that access to publish falsified OP-1250 study results that were more positive than the results that Olema in fact achieved and was planning to announce at the December 2021 [conference].
Sure. They allegedly made about $250,000 on the call options. A considerably easier and more lucrative part of the alleged scheme was that they had a friend who was a Lazard associate who tipped them about mergers, which they used to make about $41 million by trading shares, call options and spread bets on the target. Bloomberg’s Donal Griffin reports: A former dealmaker at Lazard Ltd., one of Wall Street’s most prominent investment banks, is accused by US authorities of feeding tips on health-care deals to a friend’s network of insider traders, who generated $41 million of illicit profits. Justin Kim — now facing both criminal and regulatory charges — received a Rolex watch and career advice while leaking 10 potential takeovers over several years through 2023, according to a complaint from the US Securities and Exchange Commission, seeking to ban him from the industry. Last month, the Department of Justice unveiled fraud and insider trading charges against Kim that carry up to 25 years in prison. … “Get ready bro,” Kim allegedly texted Shoukat in April 2023, shortly after finding out that Immunogen was in talks with AbbVie. “S—— is about to pop off.” From the complaint: After working together at Firm B in the summer of 2018, Kim and Saad became close friends. … During the scheme, Saad provided gifts to Kim, including a Rolex watch, help in drafting slides for a PowerPoint presentation Kim was preparing as part of his job at [Lazard], and advice and assistance in Kim’s search for a new investment banking position. The Rolex, whatever, but imagine risking prison in exchange for “help in drafting slides for a PowerPoint presentation.” Who controls Kelly Services? | In 1946, William R. Kelly founded a temp agency. That agency is now Kelly Services Inc., a publicly traded US company that is “one of the largest providers of temporary and permanent staffing services.” Kelly Services is a public company, but its founder retained control of the company he founded through a dual-class stock structure: Kelly has Class A shares, which are owned by the public and have no shareholder votes, and Class B shares, which have votes and which William Kelly mostly owned. Eventually his son, Terence Adderley, took over the company and the voting stock, which he put into a trust. As of last Friday, the Adderley trust owned 92.2% of the voting stock of Kelly Services. A few Class B shares are not owned by the trust and trade publicly, though not that frequently, at prices roughly in line with the price of the Class A shares. So Kelly is owned by its founding family (or rather their trust), but it is not run by the family. Terence Adderley died in 2018. His daughter, Carol Adderley, was on Kelly’s board of directors for a while — “It is the opinion of the Board of Directors that it is in the best interests of the Company to have the next generation of the Adderley family serve as a Director of the Company,” said the 2017 proxy statement — but she stepped down in 2022. Currently, most of Kelly’s board members — everyone except the chief executive officer — are independent directors, the CEO came up through the company’s ranks, and “none of the co-trustees” of the Adderley trust “serves as an officer or director of the Company.” Loosely speaking, you can think of this as a normal public company in its day to day existence: There’s a professional CEO and an independent board of directors, they run the company, and they more or less appoint themselves (through a nominating committee of the board); the family does not run the company. There is a controlling shareholder, though, and the risk factors in Kelly’s annual report note that “the voting rights of our Class B common stock are perpetual, and our Class B common stock is not subject to transfer restrictions or mandatory conversion obligations under our certificate of incorporation or bylaws,” and that “the trustees ... are therefore able to exercise voting control with respect to all matters requiring stockholder approval, including the election or removal from office of all members of the Company’s board of directors.” In theory, having a single controlling shareholder has some pluses and minuses for the board. On the one hand, the trust is the ultimate boss; if they don’t like what the board does, the trustees can throw out all of the directors. On the other hand, you know who you’re dealing with: The directors can manage the company without worrying about activist shareholders, hostile takeover bids, etc., as long as they retain the confidence of the trust. If the directors have a nice relationship with the trust, they arguably have a nicer and more secure gig than the directors of normal public companies without a controlling shareholder. But that can change in an instant. Yesterday the trust announced that it’s selling: On January 9, 2026, Trust K entered into a Share Purchase Agreement (the “Purchase Agreement”) with Hunt Equity Opportunities, LLC (the “Purchaser”), pursuant to which Trust K agreed to sell to the Purchaser 3,039,940 shares of Class B Stock (representing all of the shares of Class B Stock beneficially owned by Trust K) for an aggregate purchase price of $106,000,000 plus an amount in cash equal to $15,199,700 if at any time within the 48-month period following the closing of the Share Sale, the Issuer's market capitalization is greater than or equal to $1,200,000,000 (the “Share Sale”). Subject to the satisfaction or waiver of closing conditions, the Share Sale is expected to close on or before January 30, 2026. As a result of the Share Sale, Trust K, and Trustees Mr. Larsen and Mr. Parfet will no longer beneficially own any shares of Class B Stock.
Some quick math here. Kelly’s Class A (non-voting, public) stock closed on Friday at $9.18 per share. (It is up since this announcement, trading at about $10 at noon today.) There are about 32 million shares of Class A stock outstanding, and about 3.3 million shares of Class B, for a total of 35.3 million shares of common stock, all of which all have identical economic rights. That makes the total equity value of the company roughly $324 million at $9.18 per share. Hunt Equity Opportunities is buying 92.2% of the Class B stock, or 8.6% of the total stock of the company, for about $106 million (plus up to $15.2 million of adjustments if the market cap goes up). One way to put that is that, if it is paying $106 million for 8.6% of the company, then it is buying into the company at a $1.2 billion valuation. Another way to put it is that, if it is paying $106 million for 92.2% of the votes, then it is getting control of a $324 million company for only $106 million. How should Kelly’s board feel about this? Well: - As fiduciaries for the other, public shareholders, the board might worry. Hunt is acquiring control of a $324 million public company for $106 million. What will it do? Classically, directors of public companies tend to like it when the public shareholders get paid some premium on a change of control. Here, the public shareholders don’t seem to be getting anything: The trust is getting paid a premium, but the public shareholders will just keep their shares with a new controlling shareholder. Maybe that’s fine; maybe it’s bad. We talked a few times about a somewhat similar situation at Paramount Global, when it sold itself to Skydance Media in 2024. Paramount, like Kelly, had a controlling shareholder (Shari Redstone) who was the heir to a deceased CEO (Sumner Redstone), and who owned an economic minority but a voting majority. Skydance initially negotiated a deal with Redstone to buy her voting shares and get control of the company, but ultimately Paramount’s board negotiated a broader deal that got the public shareholders paid. But it’s a tricky negotiation: In theory, Skydance could have bought Redstone’s shares, fired the board and negotiated a merger with itself. In practice that would have led to a lot of lawsuits and complaints, and the board was able to get a deal it could live with for the public shareholders.
- As a matter of its own lifestyle, the board might prefer answering to trustees it has known forever rather than a new and economically motivated buyer.
- But what can it do? The buyer will control 92% of the company; it’s the boss now.
Back in 2018, we talked about another conflict between Shari Redstone and the board of directors of the company she controlled, which was called CBS Corp. at the time. The CBS board worried that Redstone was going to push through a merger with Viacom, another company she controlled, and it didn’t like the idea. (Ultimately that did happen, and the combined ViacomCBS was renamed Paramount in 2022.) To thwart her, the board decided to just give everyone voting stock. It said: CBS has scheduled a meeting of the full CBS Board for this Thursday, May 17, 2018 (the “Special Board Meeting”) to consider potential responses to Ms. Redstone’s conduct, including the issuance of a dividend of voting Class A shares to all stockholders — both Class A and Class B. The contemplated dividend would have the effect of reducing the Redstones’ and NAI’s voting power — from 80% to approximately 17% — but would not dilute the economic ownership interests of any CBS stockholders, including NAI. This dividend is expressly permitted by the Company’s charter.
That is: Redstone was the controlling shareholder, and she could fire the board. But the company’s charter gave the board an important power to counter that: It could issue stock. It could issue voting stock. It could give all the public shareholders enough voting stock to dilute Redstone down until she was no longer the controlling shareholder. It would have to do that fast: It would need to send stock to everyone else before Redstone had time to fire the board. But maybe it could work! (It mostly didn’t; there was ultimately a negotiated outcome and Redstone ended up getting her merger.) Kelly’s board is trying something similar. Yesterday it announced a poison pill: On Friday, January 9, 2026, the Terence E. Adderley Revocable Trust K (the “Trust”) notified the Board that it has entered into a definitive agreement to sell its entire holding, which constitutes 92.2%, of the voting Class B common stock to a private party. The Board and its advisors met several times over the course of the following days, and at a meeting held on January 11, 2026, the Board unanimously approved the adoption of the Rights Plan, which is intended to afford the Board sufficient time to become informed about and evaluate the terms of the transaction and any plans or proposals of the purchaser, and to consider the best interests of all stockholders of the Company. ... Pursuant to the Rights Plan, the Company will issue, by means of a dividend, to each outstanding share of Class A common stock and Class B common stock (collectively, the “Company common stock”) a right to purchase (a) 0.9833 shares of Class A common stock, subject to adjustment (a “Class A Common Stock Fraction”) and (b) 0.0167 shares of Class B common stock, subject to adjustment (a “Class B Common Stock Fraction”) to stockholders of record as of 5:15 p.m., Eastern Time, on January 11, 2026. … Under the Rights Plan, the rights generally become exercisable if a person or a group of persons (each, an “acquiring person”) acquires beneficial ownership of 75% or more of the outstanding shares of the Class B common stock. In that situation, each holder of a right (other than the acquiring person, whose rights will become void and will not be exercisable) will be entitled to receive, upon exercise, shares (or fractions of shares) of Class A common stock and/or Class B common stock having a value equal to two times the exercise price of the right. The math here is quite weird, but basically each shareholder (other than Hunt) can pay $44 to buy $88 worth of stock, with 1.67% of that stock being voting stock. At $10 per share, that would mean issuing 282 million new shares to the existing Class A holders, including 4.7 million new Class B shares, enough to outvote Hunt. [1] Kelly’s charter allows the board to issue stock, including voting stock, and there are plenty of authorized Class B shares. So it can issue voting shares to dilute away its new controlling shareholder. That’s not what happened: The board didn’t actually declare a stock dividend (like CBS’s board wanted to do), and the public shareholders aren’t just getting free voting stock. Instead, this is a “stockholder rights plan,” commonly called a “poison pill,” and the point of a poison pill is generally for it not to be exercised. It would be a huge mess, for Kelly and for Hunt, if the pill was exercised and millions of new shares were issued, so everyone will try to work out a deal to stop that from happening. It is “intended to afford the Board sufficient time to become informed about and evaluate the terms of the transaction and any plans or proposals of the purchaser,” and to negotiate a decent outcome for the public shareholders; it is not intended to actually dilute the acquirer down to a minority. Still one important point here is that the board could do that. In theory it could even do the CBS trade — just give away free voting stock to the Class A shareholders to dilute down the acquirer — though it would have to do it fast. In some obvious sense the controlling shareholder controls the company and can fire the board, but in another sense the board controls the company and can fire the controlling shareholder, if it moves fast enough. One of my mantras around here is “don’t call bribes chickens.” As I once wrote: Look, again, I am not an expert on bribes, and nothing in this column is ever legal advice. But it does seem to me that, if you are looking for a code word for “bribes,” “success fees” is almost infinitely superior to “chickens.” Like if someone finds these emails and asks you “isn’t ‘success fee’ just a euphemism for ‘bribe,’” you can just tough it out and be like “oh no those are success fees, very standard, in every contract, you gotta pay a fee for success. Consulting! Local expertise!” But if someone finds these emails and asks you “isn’t ‘50 million chickens’ just a euphemism for ‘$50 million of bribes,’” what, are you going to be like “no no no we had a legitimate need for 50 million chickens for this coastal monitoring project, the chickens will be stationed on the seashore to look out for pirates”? Come on. If you are using “chickens” as a euphemism for “bribes,” you are not doing it to be sneaky; you are doing it to show off how ridiculously brazen you are.
But of course you can turn this around. You do bribes, you email about “chickens,” they arrest you, you go to court, you get up on the stand, you say “no I needed 50 million chickens for my industrial poultry operation, here are the blueprints for my henhouse and the receipts for the chicken feed,” the prosecutor is like “what,” and then the courtroom doors swing open, in march 50 million chickens like that scene in Miracle on 34th Street and the judge dismisses the case. Somebody, somewhere, has sent an email asking for 50 million chickens because they wanted 50 million chickens for legitimate purposes. Maybe it was you! Similarly, the New York Times reports: For more than two years, one of Major League Baseball’s most feared pitchers would alert sports bettors to his strategy on the mound, allowing them to illicitly rake in hundreds of thousands of dollars with the inside information, according to federal prosecutors. But in court documents made public on Friday, one of the people who bet on Emmanuel Clase’s pitches made an unusual claim. He said he had talked about rooster fighting, not baseball, with Mr. Clase. Mr. Clase, a relief pitcher for the Cleveland Guardians, ran a well-known rooster-fighting operation in the Dominican Republic, where the practice is legal, and their conversations centered around gambling on those fights, rather than on baseball, said the bettor, who was not named in the court documents. … In the indictment, prosecutors seemed to interpret messages about roosters and horses as coded messages about gambling on baseball, the defense lawyers wrote. It is in the players’ interest to come up with an alternative explanation for the messages and transactions that prosecutors say are incriminating and betrayed baseball. We talked about the Clase indictment in November. From the indictment: On or about June 19, 2025, the defendant EMMANUEL CLASE DE LA CRUZ sent the defendant LUIS LEANDRO ORTIZ RIBERA a photograph of a receipt for a wire transfer of approximately 90,000 pesos from CLASE Associate-I to ORTIZ Associate-I, as well as an audio message directing ORTIZ to cause his associates in the Dominican Republic to lie about the purpose of the funds ORTIZ was receiving if asked: '"They're going to ask him what is that payment for over there. Tell him that this is payment for a horse. Payment for a horse. You got that?" ORTIZ responded, "Okay, perfect."
One reason that you might say “tell him that this is payment for a horse. Payment for a horse. You got that?” is that it is not payment for a horse, and you want to make sure that your co-conspirator has the cover story down. But sometimes it’s just payment for a horse. Incidentally. Two things that you sometimes see in insider trading cases are: - A lot of insider traders buy out-of-the-money call options on merger targets, but have never traded options before doing their one big insider trade. Prosecutors like to call out that fact: “This guy never traded options before, so the fact that he traded options right before this big merger, after getting off the phone with his friend who was a banker on the merger, is evidence of guilt.”
- Some more sophisticated insider traders intentionally create a more confusing record. If you do 20 options trades, with unimpressive results, and then make one huge score on the 21st, you can more convincingly argue “I was just a hobbyist options trader who got lucky, my phone call with my friend the banker was just a coincidence.”
Similarly, if you are betting on your friend the major league pitcher’s pitches, and you are also constantly talking to him, it is perhaps helpful if you are frequently doing, and talking to him about, unrelated gambling. Hedge Funds Turn Chaos Into Cash for Best Gains in 16 Years. JPMorgan Investment-Banking Fees Drop on Underwriting Miss. Behind the Unraveling of Apple’s Credit-Card Partnership With Goldman Sachs. Microsoft Vows to Pay Utility Rates to Cover Data Center Costs. US Bancorp to Buy Brokerage BTIG for $1 Billion in Trading Push. Billions from a million: the London VC that hit the jackpot with Revolut. Wall Street Reboots Leverage in $153 Billion Active Stock Trades. Diameter’s Winning First Brands Bet Goes ‘ Horribly Wrong.’ First Brands creditors claim ‘two-man’ firm enabled founder’s brother’s fee windfall. Ackman Pitches Prepayment Penalties as Way to Cut Mortgage Rates. Forty hours and thousands of boxes ransacked: inside Germany’s latest bank heist. If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks! |
