The U.S. Securities and Exchange Commission on Tuesday suffered a rare loss before one of its own judges, who dismissed a case accusing an Atlanta real estate investor of insider trading.
SEC Administrative Law Judge James Grimes found no evidence that Charles Hill gained $744,000 of illegal profit in shares of Radiant Systems Inc in 2011 after learning that the provider of software to hospitals and retailers was in talks to be sold to NCR Corp.
The SEC did not immediately respond to requests for comment.
Grimes' decision marks the failure of the SEC's game plan to pursue Hill through an in-house administrative proceeding, a strategy approved by a federal appeals court in Atlanta last June after more than a year of litigation by Hill.
Critics of such proceedings, which were championed by former SEC enforcement chief Andrew Ceresney, say they are unfair to defendants because there are no juries and limited depositions, and because judges are on the SEC payroll.
Federal appeals courts have divided on the proceedings' constitutionality, raising the prospect that the U.S. Supreme Court may take up the issue.
Grimes said the size, timing and profitability of Hill's purchases of $2.1 million of Radiant stock "strongly suggests that Hill knew something about Radiant" before it agreed to a $1.2 billion takeover by NCR in July 2011.
But the judge said the SEC enforcement division did not show Hill traded based on nonpublic tips about the merger from his close friend Todd Murphy, an artist who was also a close friend of Radiant Chief Operating Officer Andrew Heyman.
"The division argues that I should infer that both (Heyman) and Murphy were lying," Grimes wrote. "In light of their credible testimony denying the division's allegations, the division has not carried its burden of proof."
Ross Albert, a former SEC enforcement lawyer representing Hill, called the decision "a complete and total vindication" for his client.