Yesterday, we wondered whether Moody’s (MCO) CEO Raymond McDaniel might have engaged in insider trading when he dumped a few million dollars-worth of Moody’s stock the day the SEC’s “Wells Notice” arrived.The counter-argument was that McDaniel’s transaction was an “automatic sale,” which lawyers say would protect him from an insider-trading violation.
But now it emerges that this “automatic sale” was not part of a long-running program in which McDaniel was, say, trimming his position every month or so. Instead, Moody’s tells the New York Times, McDaniel entered into the “automatic sale” program about a month before the Wells Notice arrived.
Now, Wells Notices don’t just arrive suddenly in the mail, with no warning whatseover. They follow SEC investigations, which usually take months if not years. Usually, in the course of these investigations, companies get a sense of how strong the SEC thinks its case is and/or whether the investigation is likely to lead to a Wells Notice and/or a complaint.
So it is highly likely that McDaniel knew about the SEC investigation and where it might lead when he entered his “automatic sale” order.
Is knowledge of an ongoing SEC investigation that might lead to a Wells Notice and/or charges “material non-public information”? Depends on how serious the investigation is. In this case, the SEC is threatening to issue Moody’s a “cease and desist” order that would revoke its status as a recognised rating agency. That, it seems to us, is material non-public information.
So McDaniel’s “automatic sale” order seems worth looking into. What did he know and when did he know it?