District Court Preserves PIPE Insider Trading Claims Against Gryphon Hedge Fund

On March 23, 2009, the United States District Court for the Southern District of New York  decided that a lawsuit brought by the Securities and Exchange Commission against hedge fund manager Edwin “Bucky” Buchanan Lyon, IV, and the Gryphon family of hedge funds (Gryphon Funds) he managed (collectively, the defendants), may advance to trial.  The SEC accused the defendants of securities fraud and insider trading for allegedly short selling shares in four companies after obtaining confidential non-public solicitations to participate in those companies’ upcoming private investments in public equities (PIPE) transactions.  The trial court declined to enter summary judgment on behalf of either party, holding “issues of material fact remain in dispute – namely, whether defendants accepted a duty of confidentiality with regard to each of the four PIPE offerings” which they subsequently breached.  We explain how a PIPE transaction works, and detail the facts of the case and the court’s holding and analysis.

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