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Last week, the SEC announced that it had obtained a judgment against one of the defendants in an insider trading case. But this isn’t just any insider trading case, because this one may involve the silliest piece of MNPI ever to result in illicit profits. Here’s an excerpt from the SEC’s litigation release on developments in SEC v. Watson:

On September 20, 2024, the Securities and Exchange Commission obtained a final judgment against defendant Oliver-Barret Lindsay, a Canadian citizen, whom the SEC previously charged with insider trading in advance of an announcement by Long Blockchain Company (formerly known as Long Island Iced Tea Co.) that it was going to “pivot” from its existing beverage business to blockchain technology, which caused the company’s stock price to soar.

The SEC’s complaint was filed on July 9, 2021, in federal district court in the Southern District of New York. The complaint alleged that Lindsay’s co-defendant Eric Watson, a Long Blockchain insider who had signed a confidentiality agreement not to disclose the company’s business plans, tipped Lindsay about Long Blockchain’s unannounced plans to pivot to blockchain technology. The complaint further alleged that Lindsay then tipped his friend and co-defendant, Gannon Giguiere, who purchased 35,000 shares of Long Blockchain stock within hours of receiving confidential information about Long Blockchain from Lindsay. According to the complaint, the company’s stock price skyrocketed after a press release was issued announcing its shift to blockchain technology. The complaint further alleged that within two hours of the announcement, Giguiere sold his shares for over $160,000 in illicit profits.

The SEC’s complaint provides more details. Apparently, the company announced that it was “shifting its primary corporate focus towards the exploration of and investment in opportunities that leverage the benefits of blockchain technology” compared to “the ready-to-drink segment of the beverage industry,” as well as changing its name to “Long Blockchain Corp.” in place of “Long Island Iced Tea Corp.”

That announcement was apparently enough to send the stock price skyrocketing by nearly 400% and to increase its trading volume by 1,000%. Seriously? C’mon, the idea that a microcap soft drink company could suddenly become 400% more valuable because it issues a press release announcing a pivot to “opportunities that leverage the blockchain” seems like it could only come from the mind of an underpants gnome.

Nevertheless, a lot of people seem to have bought into it, which makes complete sense if you proceed under the assumption that everyone in the market is as dumb as a bag of hammers. Unfortunately, cases like this one demonstrate that P.T. Barnum’s supposed statement that “there’s a sucker born every minute” frequently explains how markets work a lot better than the Efficient Market Hypothesis does.

– John Jenkins