The United States Securities and Exchange Commission (SEC) has launched an enforcement action against three individuals involved in unlawful insider trading in the securities of Snap Inc.
The SEC’s complaint, submitted at the California Central District Court on December 3, 2021, and seen by FX News Group, alleges unlawful insider trading in the securities of Snap by defendant Ammar Kutiyanawalla ahead of Snap’s February 2018 positive earnings release based on a tip from his brother-in-law, defendant Mohammed “Mo” Pithapurwala, who was a lead engineer at Snap.
In January 2018, Pithapurwala had access to material non-public information concerning Snap’s fourth quarter and year-end 2017 financial results. Knowing he was prohibited from trading in Snap securities during the blackout period and from trading Snap options at any time, Pithapurwala asked Ammar to purchase Snap options. Pithapurwala and Ammar agreed to share the profits from Ammar’s trading.
Pithapurwala and his wife, Alifiya Kutiyanawalla, Ammar’s sister, funded the trading by surreptitiously transferring $20,000 to Ammar through intermediaries, in multiple transfers over the course of a week.
On February 5 and 6, 2018, just before Snap’s results were to be announced, Ammar purchased $24,039.67 of short-dated, out-of-the-money Snap call options based on Pithapurwala’s tip. The trading was highly unusual for Ammar, who had never previously purchased any Snap securities and had only limited experience trading options. The options were set to expire shortly, and at the time of Ammar’s purchase, the strike price was higher than the current market price for Snap’s common stock.
If Snap’s share price did not rise before the options’ expiration, Ammar would lose his entire investment.
After markets closed on February 6, 2018, Snap announced earnings results that beat market analysts’ expectations, causing its stock price to rise 48% the next day. Ammar sold all the options on February 7 and 8, 2018, realizing profits of $261,515.78 – a 1088% return in just three days.
The SEC’s complaint alleges that Pithapurwala and Ammar violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Alifiya aided and abetted their primary violations.
The Commission seeks findings that Defendants committed the above violations, and final judgments: (a) permanently enjoining Defendants from violating the federal securities laws and rules this Complaint alleges they have violated; (b) ordering Defendant Ammar Kutiyanawalla to disgorge all ill-gotten gains he received as a result of the violations alleged and to pay prejudgment interest thereon; (c) ordering the defendants to pay a civil money penalty; and (d) ordering any other and further relief the Court may deem just and proper.