SEC Allegations of Insider Trading

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Defense counsel retained Professor Emeritus William Beaver of Stanford University and Cornerstone Research on behalf of a former CEO of a publicly traded water treatment company.

Retained by Scheper Kim & Harris Defense counsel retained Professor Emeritus William Beaver of Stanford University and Cornerstone Research on behalf of a former CEO of a publicly traded water treatment company. After a company announcement that it would restate its financial results for the previous two years, the SEC filed a lawsuit alleging that the former CEO had taken part in an accounting fraud scheme to artificially inflate the share price, while at the same time engaging in insider trading.

In a complete victory for our client, the judge ruled in his favor on all counts.

Notably, this was one of the first cases in which a judge accepted the use of two specific accounting models, including the “BBHL” model (named after Professor Beaver and his coauthors, Mary Barth, John Hand, and Wayne Landsman). Using this model, Professor Beaver assessed the portion of the CEO’s company stock sales to determine what the defendant’s profits would have been if the company had revealed its financial condition initially, without any restatement. Professor Beaver also based his analysis on “earnings response models. In a complete victory for our client, the judge ruled in his favor on all counts.

Case Expert

William H. Beaver

Joan E. Horngren Professor of Accounting, Emeritus,
Stanford Graduate School of Business