Shadow Trading Between Companies: One Company’s News, Another Company’s Options

Shadow trading uses important, nonpublic information about one company to trade securities of economically related businesses. In the Medivation case, the Securities and Exchange Commission traced acquisition news to an employee’s purchase of Incyte options. If you work on acquisitions, company valuations or employee trading reviews, you may recognize the connection before anyone looking only at the account does. The news names one business. The order names another.

This page follows the economic connection between those companies and the information that crossed it. Our broader insider trading page follows confidential information from its source to the person who trades. Here, the acquisition discussions, comparisons between the companies and brokerage order explain why both businesses belong in the same story.

Why Medivation’s Acquisition Mattered to Incyte

The SEC’s case tied Medivation and Incyte together through the market for cancer-drug companies with products already on sale. In its complaint against a Medivation business development executive, the agency alleged that he reviewed investment bankers’ presentations comparing the businesses. The comparison was specific:

According to the complaint, large pharmaceutical companies wanted to acquire businesses with that combination of size, oncology focus and commercial-stage drugs. Few candidates remained. Buying one could make the others more attractive acquisition targets and lift their stock prices. That is the economic connection the SEC alleged the executive understood.

His work put that comparison in front of him repeatedly. The complaint said he tracked other biopharmaceutical companies’ stock prices, drug products and development pipelines, including Incyte’s. He also suggested that Medivation’s bankers consider Incyte a comparable company. Analyst reports made the same comparison, and the bankers later included Incyte in their work assessing the fairness of Pfizer’s offer for Medivation.

For someone in business development, those presentations explain why a trade in another company deserves attention. The SEC’s account put the comparison inside his day job before it appeared in his personal brokerage account.

The Acquisition News Inside Medivation

The confidential information concerned an imminent acquisition at a premium, with specific bidders and a near-term announcement. The complaint alleged that the executive received bid summaries, helped coordinate responses to potential buyers’ due diligence requests and attended board discussions about a possible merger. He was inside the process that turned interest in the business into a transaction.

On August 18, 2016, Medivation’s chief executive emailed a group of executives about Pfizer’s strong interest in buying the company. According to the complaint, Pfizer’s chief executive planned to call later that day to resolve final details. Earlier communications had identified the target date for a public announcement.

That sequence gives an insider something concrete to recognize. A bid summary, confidential board materials and an email about final negotiations can show what information reached the employee before the trade. The question we examine with you is what the recipient learned from those communications and why that news mattered to the company whose securities were purchased.

The Trading Policy Reached Other Public Companies

Medivation’s insider trading policy expressly covered using its confidential information to profit from trades in other public companies. The complaint alleged that the executive signed that policy and separately agreed to keep information learned at work confidential and use it for Medivation’s benefit.

The policy identified significant collaborators, customers, partners, suppliers and competitors among the other companies whose securities it covered. The SEC also alleged that the executive neither sought authorization for the Incyte trades nor told anyone at Medivation about them. The SEC alleged that his employment and signed agreements required him to protect Medivation’s confidential information, and that he broke that trust by using it for his own trade.

We see the absurdity in treating the ticker symbol as the boundary of a company secret. In the SEC’s account, the news came from Medivation, the trade went into Incyte and the policy already reached beyond Medivation’s own shares. The ticker changed. The source of the information did not.

The Email Was Followed by an Options Order

The complaint alleged that the executive bought 578 Incyte call option contracts within minutes of receiving the acquisition email. He logged into his personal brokerage account from his work computer and selected the soonest available expiration date. The options’ strike prices were above Incyte’s then-current stock price, making the expected rise central to the trade.

According to the SEC, he had never traded Incyte stock or options before. He knew Incyte was not expected to make a significant announcement before the options expired. The agency alleged that he expected Medivation’s acquisition announcement to move Incyte’s stock instead.

Medivation publicly announced its agreement with Pfizer before the market opened on August 22, 2016. The complaint reported that Incyte closed approximately 8% higher than its prior trading day’s close and that the executive’s options roughly doubled in value. It alleged illicit profits of $107,066 from the trade.

The Jury Found Insider Trading

The SEC’s announcement of the verdict reported that a federal jury found the executive liable for insider trading on April 5, 2024. The case connected confidential acquisition news, the executive’s commitments to protect it and an options purchase in a company he knew was comparable.

How Hard Is It to Prove Insider Trading?

Proving shadow trading requires connecting the news about one business to the decision to trade another’s securities. The Medivation complaint shows how communications, company comparisons, confidentiality commitments and brokerage transactions can work together. Each answers a different part of the question.

An acquisition email identifies the news and its recipients. Bankers’ presentations and the employee’s own comments can explain why the other company mattered. The signed policy and confidentiality agreement show what the employee agreed to protect. Brokerage orders establish what was bought and when, while earlier account activity helps explain whether the position was unusual for that trader.

We connect those communications and transaction records with the person who understands the business behind them. You may know why Incyte appeared in a comparison, what a bidder’s message meant or who received the discussion of the final deal. That knowledge can give a timestamp its meaning.

Why the Information’s Source and Timing Matter

Advance access can let a few people profit from information intended for investors generally. Insider Trading and the Integrity of Mandatory Disclosure, published in the Wisconsin Law Review in 2018, argues that insider trading can undermine the purpose of public disclosure. The paper puts the principle plainly:

The paper argues that insiders should not profit from the time companies need to analyze and verify information before releasing it. For an employee who knows when important news became available inside a business, the timing can explain the advantage the trader obtained.

Can You Report Someone for Insider Trading?

Yes, an insider’s information can support a report about shadow trading to the SEC. We guide you through reporting securities fraud, connecting what happened inside the business to the transactions the agency can investigate. The relationship between the companies may be the part you understand best.

SEC whistleblowers can share awards totaling 10% to 30% of sanctions collected when the action results in more than $1 million in monetary sanctions. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. That separate program concerns false claims for government money. We assess which program fits the conduct you know.

You Know Why the Other Company Mattered

If confidential deal news and a trade in another company fit together in ways you can explain, speak with our whistleblower experts about that connection. We build the case with you around the information, the industry relationship and the trade, and bring in securities fraud whistleblower lawyers who understand how those pieces fit. We stay beside you as the knowledge you brought from inside the business becomes evidence the SEC can use.