One of the most volatile stocks last week was LNCR. On Wednesday the Financial Times reported that it was in talks to be taken over for over $40 per share. The stock immediately spiked on heavy volume from 26 to 29. The market clearly believed the story. So it was on the top of my list for trading the rest of the week.

When I took a look at the longer term chart I noticed an unusual move about two weeks ago when LNCR moved from 22 to 26 on very heavy volume. There were no news items at the time to cause this move. This is what insider trading looks like. Someone with “material non public information” most likely shared this information with someone who then decided they would place a trade. This is illegal. It is illegal because we have laws that attempt to create a level playing field for all market participants. Even if that never seems like its the case.

Today it was announced that Linde will be purchasing LNCR for $41.50 per share. If I had to handicap the chances that the SEC will be charging one or more individual with insider trading in LNCR prior to the release of the Financial Times story I would say it is over 80%.  The SEC is not so good at detecting ponzi schemes but they have been pretty good over the years at detecting and prosecuting insider trading cases.

Steven Spencer is the co-founder of SMB Capital and SMB University and has traded professionally for 16 years. His email is [email protected].

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