Although the court case is still working its way through the system, a federal court in San Francisco denied a motion to dismiss the charges filed by the SEC against Panuwat in 2022. The SEC argues Panuwat's actions were a form of insider trading. Much more is left to establish before a full understanding of shadow trading can be really determined.
What is an "economically linked" company?
The specific charge with shadow trading is that you're buying or selling securities of a company that's "economically linked" to the company based on MNPI. But what is an economically linked company?
In the Panuwat case, the company being traded was a competitor the same size as Panuwat's company. As a mid-cap company focused on biopharmaceuticals for oncology, it was essentially the same as his employer. Only one was being acquired, but both were part of a very limited pool of potential future acquisitions, making them peers in basically every way that counted.
But in the future, other economically linked companies might include companies in different industries that rely on a company for their success or even indirect competitors that are still considered to move with the same market forces. This will take time to play out in court.
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