SEC Sues Photonics Company's Line Manager on Insider Trading Allegations

A product line manager at photonics company Lumentum bought 10,000 shares of NeoPhotonics a week before Lumentum announced it would buy the optoelectronics company, said an SEC securities fraud complaint Monday (docket 1:24-cv-04231) in U.S. District Court for Southern New York.

Prior to Oct. 28, 2021, defendant Andre Wong, of San Jose, California, had never traded NeoPhotonics securities or the securities of any other company in the U.S. photonics market, other than those of his employer, the complaint said. Wong obtained “material nonpublic information about Lumentum’s confidential plans to acquire NeoPhotonics” from a colleague and close friend at Lumentum, colleague 1, who was assigned to help with due diligence on the deal, it alleged.

After Lumentum announced it acquisition of NeoPhotonics on Nov. 4, the price of NeoPhotonics rose 39%, and Wong’s shares were worth $62,500 more than when he bought the stock, measured by the closing price of the shares that day, the complaint alleged. When FBI agents confronted Wong later about his NeoPhotonics trading, Wong “sought to conceal the illegal nature of his trading,” said the complaint. The defendant denied his awareness of Lumentum’s plans to acquire NeoPhotonics to the FBI agents and created “false texts” to hide his in-person meeting with colleague 1 soon after the agents approached him, it said.

During the relevant period, Wong and colleague 1 were peers, as product line managers for similar products at Lumentum, the complaint said. Wong was aware that the colleague was a subject-matter expert on the Lumentum line that competed with similar products at NeoPhotonics and understood she would know about, and be involved with, any potential plan by their company to acquire NeoPhotonics, it said.

Wong and colleague 1 communicated regularly via phone calls, texts and email and “regularly had dinners together” and discussed their families and personal lives, alleged the complaint. The two employees knew they were subject to Lumentum’s policies and procedures, including those related to insider trading and “safeguarding material nonpublic information,” it said.

Colleague 1 completed annual training for the company’s business conduct code on April 28, 2021; Wong completed his almost two weeks later, it said. The training explained that inside information was nonpublic and could include information about upcoming mergers or acquisitions, the complaint said. The two employees also completed confidentiality acknowledgments about affiliate and subsidiary companies controlled by Lumentum in July 2021, it said. On Aug. 31, Wong texted two other colleagues about a “potential acquisition" by Lumentum, but was unable to secure details, it said.

Lumentum and NeoPhotonics first discussed a potential acquisition in September 2020, overlapping with Lumentum’s “parallel negotiations” with another target company, the complaint said. The following March, Lumentum and the other potential target terminated their negotiations, it said. Between June and September 2021, Lumentum offered to buy NeoPhotonics for $16 per share; the board voted to accept the offer on Oct. 5, the complaint said. The companies negotiated terms of the acquisition agreement from Oct. 10-Nov. 3 and “engaged in due diligence discussions,” it said.

On Oct. 8, Wong and colleague 1 had dinner at a San Jose restaurant where they discussed likely targets of Lumentum’s upcoming acquisition, the complaint alleged. On Oct. 12, colleague 1’s supervisor told her Lumentum and Photonics had resumed discussions and that she could be asked to participate in the due diligence process again in the near future, it said. On Oct. 18, Wong texted colleague 3 he could obtain information on mergers and acquisitions by looking through internal email distribution groups. On Oct. 21, Wong suggested to colleague 2 that NeoPhotonics could be the acquisition target, it said.

On Oct. 13, colleague 1 bought 350 shares of NeoPhotonics for $9.12 per share. She bought 11,700 more shares between Oct. 15 and Nov. 1 at an average price of $9.80, the complaint said. After an Oct. 27 phone call with colleague 1, Wong bought 10,000 shares of NeoPhotonics stock the following day, it said.

Wong “falsely claimed to the FBI agents” the following March that the timing of his trading in NeoPhotonics “just days before Lumentum announced its acquisition” was “coincidental” and that he didn’t know about the planned buy before the public announcement, it said.

For alleged violations of the Exchange Act, the SEC requests a judgment enjoining Wong and his agents from directly or indirectly violating the Act; an order requiring him to disgorge all ill-gotten gains arising from the NeoPhotonics shares, with pre-judgment interest; an order that Wong pay civil monetary penalties; and an order prohibiting him from serving as an officer or director of any company with a class of securities registered under certain sections of the Exchange Act.