Plaintiff Securities and Exchange Commission (“SEC”) charged that Defendant Matthew Panuwat engaged in insider trading in violation of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 (the “Exchange Act”), by using his insider knowledge about Medivation, Inc.’s plan to announce an upcoming merger to make leveraged, short-term trades in Incyte Corporation (“Incyte”) call options.
Following a one-week jury trial, the jury returned a verdict in the SEC’s favor. Panuwat, subsequently, renewed his motion for judgment as a matter of law and, in the alternative, moved for a new trial.
Panuwat argued that a new trial is warranted because the Court “erred by allowing Chyhe Becker to testify as an expert, and then compounded the error by allowing her to introduce hearsay testimony.”
Economics Expert Witness
Chyhe Becker is currently the Deputy Chief Economist and Deputy Director of the Division of Economic and Risk Analysis at the U.S. Securities and Exchange Commission. In her role, she leads a division of approximately 200 economists, statisticians, and data scientists who integrate financial economics and data analytics to support the SEC’s policy, rule-making, enforcement, and examination activities.
Becker joined the Securities and Exchange Commission in March 2008, leading the Office of Litigation Economics until May 2018. She was previously a Principal with Chicago Partners LLC, where she specialized in securities litigation. Prior to Chicago Partners, she was a Principal with the Economic Consulting group at Deloitte Financial Advisory Services LLP where she provided expert testimony and analysis in securities class action matters as well as contract disputes. She received an M.B.A. and Ph.D. in Financial Economics from The University of Chicago Graduate School of Business, and a B.A. in Psychology from Yale University. Her research has been published in the Journal of Financial Intermediation and she taught corporate finance at The University of Chicago Graduate School of Business.
Discussion by the Court
The Court denied Panuwat’s motion in limine to exclude Becker’s testimony. Panuwat asserted then and now that Becker was unqualified to opine about mergers and acquisitions in the biopharmaceutical industry because she “lacked necessary expert qualifications, used unreliable methodologies, and impermissibly relied on hearsay to prepare her report.” But Becker had significant experience in market and risk analysis, and her opinions on how the market would perceive Medivation and Incyte’s stock prices in relation to one another (which was her key area of testimony) did not require specific biopharmaceutical knowledge.
Panuwat contended that “three specific errors” occurred at trial with respect to Becker. The Court addressed each piece of challenged testimony.
Confounding News
The first error, Panuwat argued, occurred when the SEC “violated the Court’s ruling that Becker could testify about analyst reports as relevant to the existence of confounding news … by introducing analyst reports related to a wholly separate issue.” He said that the SEC “in fact introduced no analyst reports as relevant to Becker’s confounding news analysis and introduced the hearsay opinions of three analysts solely in support of Becker’s claim that the so-called economic phenomenon of a spillover effect . . . was relevant to the biopharma industry.”
Panuwat believed that Becker adopted the contents of three article exhibits without conducting any independent analysis. Becker’s testimony at trial suggested that she relied on hearsay opinions asserted in analyst reports to confirm her opinions, not for their truth.
Contrary to Panuwat’s assertion that Becker “adopted the contents of [these exhibits] …without conducting any independent analysis,” the Court held that her testimony showed that she had bases for her own opinions on spillover effects in the market.
She stated that there was peer-reviewed research on the idea of spillover effects, explained why news of a merger would lead to a spillover effect, and why market observers would have expected Incyte’s stock price reaction to Medivation’s merger news, using exhibits. She went on to explain the other things she did to determine whether, in her expert opinion, spillover effects would have affected Incyte’s stock price. At no point did Becker testify that her opinion on spillover effects was based on the at-issue article exhibits. The Court held that her testimony about confounding news was proper and complied with the Court’s limiting order.
Limiting Instruction
Panuwat argued that “even if these hearsay opinions were relevantly admitted to explain Becker’s conclusions on confounding news, the Court erred by failing to issue the required limiting instruction.” The judge, William H. Orrick, instructed the jury generally, several times, that news articles were not admitted for their truth, but only for the “fact that this news was out, such as it is,” or to show “what market observers were saying.”
Cherry Picked Statements
Panuwat also contended that Becker’s opinions relied on “cherry-picked results” from the outset. He posits that her opinion that “market observers would expect Incyte’s stock price to increase” on announcement of Medivation’s merger was not based on objective criteria, but was instead result-oriented. He said that her explanation for how she reached her conclusions was prejudicial because “the jury lacked the skillset necessary to properly evaluate the unreliability of her methods.”
When asked “how she identified” the event studies she used, Becker stated that “what I looked for was were there times when pretty much the same thing had happened in the past . . . and when I say the same thing, I mean the same thing as Medivation’s August 22 merger announcement, and what I’m looking to see is how did Incyte’s stock price react to those prior events that are similar.” She even prepared a demonstrative to help explain what she meant.
Becker explained that she found two prior similar events that she used as event studies. One was a prior announcement that Medivation was a takeover target, the second was a rumor that another company that was “similar” to Medivation (in that it was a biopharmaceutical company focused on oncology drugs) was also a takeover target.
The Court held that Becker provided the jury with an explanation for why she chose the event studies she did. Panuwat had the opportunity to cross-examine her; his argument that they were cherry-picked is conclusory. As for his argument that the jury “lacked the skillset necessary” to determine whether Becker’s opinion was reliable, Panuwat provides no evidence or reason in support of this position.
Held
As a result, the Court denied the Defendant’s motion for judgment as a matter of law and also denied his motion for a new trial.
Key Takeaway:
The Court denied Panuwat’s motion in limine filed against admitting Becker’s testimony. When Panuwat argued that a new trial is warranted because the Court erred by allowing Becker to testify as an expert, the Court held that Becker provided the jury with an explanation for why she chose the event studies she did. Panuwat had the opportunity to cross-examine her; his argument that they were cherry-picked is conclusory.
She stated that there was peer-reviewed research on the idea of spillover effects, explained why news of a merger would lead to a spillover effect, and why market observers would have expected Incyte’s stock price reaction to Medivation’s merger news, using exhibits. She went on to explain the other things she did to determine whether, in her expert opinion, spillover effects would have affected Incyte’s stock price.
Case Details:
| Case Caption: | Securities And Exchange Commission V. Panuwat |
| Docket Number: | 3:21cv6322 |
| Court: | United States District Court, California Northern |
| Order Date: | September 9, 2024 |
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