Former Capital One Analyst On The Hook For Insider Trading

Former Capital One Financial Corp. Analyst Nan Huang has been found liable in civil court of using non-public sales data from the credit card issuer to buy and sell stocks. A long way of saying: Huang was convicted of insider trading.

The SEC managed to convince a Philadelphia area federal jury that Huang’s use of his firms sales and earnings reports to trade in shares of consumer retail firms constituted a material breach of regulations — a breach, it should be noted, that ended up being worth $1.5 million for Huang.

Nan Huang was sued in concert with coworker Bonan Huang (no relation) in connection to the “hundreds, if not thousands” of keyword searches performed on their company’s private database for sales data on at least 170 publicly traded companies. The case against them basically describes the two analysts then taking that data and trading with it, right ahead of quarterly sales announcements.

According to the case, starting out with $147,000, the two were able to rack up around $2.8 million from the trades, a three-year return of 1,819 percent.

Bonan Huang has already settled with the SEC for $4.7 million in penalties and other payments without admitting or denying the allegations.

The verdict was something of a needed victory for the embattled SEC, which has lost a quite a few insider trading cases of late — most recently and publicly against billionaire Mark Cuban. The year 2015 went a bit better; the agency won 23 of 25 trials involving securities violations during the fiscal year, but it did suffer a loss in its attempts to convict two former Wells Fargo traders in September.

Nan Huang did not contest that he used the non-public data, instead arguing that the information was not “material” and did not give him any important advantage in the market over a regular trader.

“Obviously, we are disappointed in the verdict,” said Gregory Morvillo, Huang’s New York-based lawyer. “We have a fundamental disagreement with the SEC as to materiality, not just as applicable to the facts in this case but as a matter of law,” Morvillo said in an email to Reuters.

What comes next remains to be seen, as punishment has not been meted out yet. Huang will likely face a fine and a requirement to return ill-gotten gains. Lawyers spent yesterday (Jan. 13) debating how to calculate those gains (profits). The judge will determine penalties in a separate order.