Judge J. Paul Oetken
The SEC brought action against unknown traders who bought call options for shares of Onyx Pharmaceuticals Inc. shortly before a public announcement that caused its shares to jump 50 percent in value. It alleged the purchases insider trades violating §10 of the Securities Exchange Act. The court froze all assets related to the trades. Defendants Jafar and Nabulsi sought dismissal of the SEC’s complaint, and vacatur of the asset freeze order. The court granted them dismissal, finding that the SEC’s allegations were insufficient—under Federal Rules of Civil Procedure 8 and 9(b)—to imply that anyone tipped the defendants. Moreover, the SEC failed to allege facts raising a strong inference of scienter even if there was a tip, the SEC’s allegations did not support a reasonable inference that the tip violated a fiduciary duty, or that defendants knew or should have known about the violation. The court allowed the SEC 30 days to file an amended complaint. It also modified the freeze order so that it applied to only $2.52 million in an account at Citigroup Global Markets Inc. which Jafar and Nabulsi conceded represented the actual proceeds from the trades at issue.
