The Intersection of Trade Secrets Law and Insider Trading Law

Bloomberg is reporting that James Fleishman, a former Primary Global Research LLC sales manager, was indicted on insider trading charges and also accused in a U.S. Securities and Exchange Commission lawsuit along with five other people of tipping investors including hedge funds.

Prosecutors in New York yesterday released an indictment charging Fleishman, 41, with one count each of conspiracy to commit securities fraud and conspiracy to commit wire fraud. Both charges carry a maximum punishment of five years in prison. Fleishman was arrested and released on $700,000 bond Dec. 16.

The charges are related to a federal investigation into hedge-fund insider trading that began with New York-based Galleon Group LLC. As part of the investigation, the SEC yesterday sued Fleishman and five others connected to Primary Global, an expert consulting firm.

“Company executives and other insiders moonlighting as consultants to hedge funds cannot blatantly peddle their company’s confidential information for personal gain,” Robert Khuzami, director of the SEC’s Division of Enforcement, said in a statement. “These PGR consultants and employees schemed to facilitate widespread and repeated insider trading by several hedge funds and other investment professionals.”

Mr. Khuzami and the SEC have not characterized this case as an Economic Espionage Act case - but it has some of those hallmarks, no? Information sets that have independent value in the fact that their secrecy is controlled in a reasonable way under the circumstances are called trade secrets. We'll keep an eye on these prosecutions and see if the trade secret angle ends up making sense to the prosecution.