In an opinion dated yesterday, Judge Oetken dismissed an SEC complaint against two individuals who made what it contended were highly suspicious trades in the stock of Onyx Pharmaceuticals, Inc. shortly before Amgen, Inc. made an unsolicited bid for Onyx that made Onyx’s stock price rise. Judge Oetken ruled that the complaint did not have enough facts to suggest that there was an unlawful tip:

The complaint alleges “upon information and belief” that the Defendants were tipped, that the tipper expected to receive a benefit, and that the Defendants “knew, recklessly disregarded, or should have known” that their trades were in breach of a fiduciary duty, “and/or” that they had been tipped in violation of a fiduciary duty. (Compl. ¶¶ 31–33.) These allegations are all belief and no information. Unless such beliefs can be reasonably inferred from the well-pleaded factual allegations, they amount to a “threadbare recital[]” of the elements of tippee liability that does nothing to nudge the SEC’s claim “across the line from conceivable to plausible.” Nor is the Court bound to accept the SEC’s characterization of these trades as “risky” and “highly suspicious.” (See, e.g., Compl. ¶ 5.) Calling these trades highly suspicious is tantamount to saying that the trades strongly support an inference of insider trading—that is a legal conclusion, not a fact, and it is a conclusion that is not supported by facts alleged in the complaint. . . . . The SEC has not identified a person or a limited group of people who might have been the tipper. The SEC has not alleged a preexisting relationship between the Defendants and Amgen or Onyx that might be a basis for inferring that a tip had been passed on. The SEC has not identified records of any communication between a potential tipper and the Defendants. And the SEC has not identified a pattern of trading behavior that belies the Defendants’ knowledge about specific steps in the negotiation process. Moreover, the SEC has failed to allege facts that raise a strong inference of scienter. Even if there was a tip—which it is not reasonable to infer from these facts alone—the SEC’s allegations do not support a reasonable inference that the tip was in violation of a fiduciary duty, much less that the Defendants knew or should have known about the violation. The complaint does not contain any allegations about the confidentiality of the Amgen offer or the efforts, if any, that either company made to keep the offer secret. Yet the SEC asks the Court to infer that someone tipped the Defendants about the Amgen offer, and on that basis, to infer that the tipper was deceptively breaching a fiduciary duty, then on that basis, to infer that the Defendants knew or were reckless in not knowing that the tip (whatever its content) consisted of material nonpublic information, and that Defendants knew or should have known that the tipper (whoever she was) breached a fiduciary duty by passing on the tip. Piling inference upon inference in this way does not provide the requisite strong support for the inference that the Defendants acted with scienter.

Judge Oetken granted the SEC leave to amend. (H/T Nate Raymond)