Insider Trading Among SanDisk’s Family Members in Acquisition of Fusion in 2014

This case involves insider trading among family members in the securities of Fusion—io, Inc. between May 27, 2014 and June 11, 2014.

Shortly before SanDisk Corporation announced on June 16, 2014 that it was commencing a tender offer for Fusion’s stock at a price of $11.25 per share, defendants Ananda Kumar Ananda and Vijaya Ananda – who are defendant Anand Jayapalan’s uncle and aunt and had never previously traded in Fusion – purchased over 78,000 shares of Fusion’s common stock, including approximately 1,000 shares through a brokerage account Vijaya shared with Jayapalan’s wife, Nair. Kumar, Vijaya, and Nair sold their shares after news of the tender offer broke, reaping collective profits of more than $215,000.

Kumar, Vijaya, and Rajni Nair learned of the tender offer from Jayapalan, who worked for SanDisk as a GM. Jayapalan first learned that SanDisk was entering into exclusive negotiations to acquire Fusion on or about May 22, 2014. SanDisk told Jayapalan and other employees on multiple occasions that they were not to share information about the tender offer with anyone outside of SanDisk. Jayapalan breached this trust and passed the inside information to Nair, and to Kumar and Vijaya, sometime between May 23, 2014 and May 26, 2014.

On May 27, 2014, the very next day the stock markets were open, Kumar and Vijaya began buying up large amounts of Fusion stock at or around 6:10AM. Again, this was the first time that Kumar and Vijaya had ever purchased shares of Fusion stock and they continued buying it up in the following days and weeks. By June 11, 2014, they had purchased approximately 78,900 shares of Fusion stock using eight different brokerage accounts for $665,778.26.

Kumar spent approximately $647,522.26 to purchase approximately 76,700 shares of Fusion across six brokerage accounts. He financed these purchases with approximately $27,459.66 in cash from his brokerage accounts, approximately $356,534.79 in stock sales, and approximately $263,661.10 in margin loans.

Kumar made this large and substantially leveraged investment in Fusion stock at a time when his medical practice was in substantial decline, he owed nearly $100,000 in credit card debt, and after he had suffered what he described as a “drastic” reduction in his personal income between 2012 and 2014, as his salary dropped by approximately one-third.

Vijaya spent approximately $18,256 to purchase approximately 2,200 shares of Fusion stock using two brokerage accounts. She purchased 1,000 shares of the Fusion stock for herself and Nair using a brokerage account they had opened jointly in 2011. Vijaya and Nair had previously agreed to split the costs of this joint brokerage account, so when Vijaya bought the 1,000 shares of Fusion stock she withdrew approximately $4,300 from Nair’s personal bank account and used it to pay for approximately half of the purchase price ($8,440). Over the next several days, Vijaya purchased an additional 1,200 shares of Fusion stock for herself using her individual brokerage account.

On June 16, 2014, SanDisk publicly announced that it had offered to acquire Fusion’s stock at a price of $11.25 per share, causing the value of Fusion’s stock to jump from $9.28 per share to $11.36 per share (approximately 22%).

Approximately one month after they began buying large amounts of Fusion stock and after news of the tender offer broke, Kumar and Vijaya began liquidating the shares. Taking advantage of the 22% increase in Fusion’s stock price, Kumar, Vijaya, and Nair together made an aggregate combined profit of approximately $215,086.01.

To read entire case