Wakaya Perfection barred from pursuing insider trading discovery
In an attempt to support claims of misconduct as the reason affiliates left Youngevity for Wakaya Perfection, the latter began exploring rumors of insider trading.
These rumors were explored in depositions of Youngevity affiliates, during which Wakaya pressed them on
questions concerning securities laws of the United States or facts germane to whether any federal securities laws have been violated.
Youngevity wasn’t happy about this and filed for a protective order prohibiting Wakaya from further exploring the alleged violations.
Wakaya Pefection began exploring alleged insider trading violations during the deposition of Keith Halls, a Youngevity affiliate since 2013.
During Mr. Halls’ deposition, counsel for Wakaya, Michael Anderson, asked Mr. Halls numerous questions about an email chain between Mr. Halls and Dave Briskie, Youngevity’s President and Chief Financial Officer.
In addition to being a Youngevity affiliate, Halls is also a Youngevity shareholder and has “at unknown timed traded that stock”.
The deposition testimony and the email chain itself reflect that on February 27, 2016, Mr. Halls sent Mr. Briskie a draft report detailing Youngevity’s financial performance, which Mr. Halls intended to send to Youngevity distributors.
Mr. Halls prepared the report to allay distributor concerns following Wakaya’s announcement that the company was going public.
Mr. Briskie responded to Mr. Halls’ email, “If you want to lower your revenue estimate to 155 Million for 2015 we will likely beat that number when our filings come out.”
Mr. Halls then updated his report, seemingly to reflect Mr. Briskie’s number.
Following this conversation, Mr. Halls sent the report to some of his downline Youngevity distributors.
The information in the report was later published as a blog post dated March 1, 2016 and was available to the public.
Wakaya Perfection’s attorney went on to question Halls about insider trading.
When asked if he was “aware that insider trading includes communicating material, nonpublic information, to others?”, Halls invoked his Fifth Amendment right against self-incrimination.
The Fifth Amendment was again used in response to the allegation that Briskie’s communication constituted non-public information and thus insider trading took place.
Youngevity’s attorneys objected to the questioning during the deposition and after the second Fifth Amendement response, instructed Halls ‘not to answer any further questions relating to inside trading‘.
After the deposition Youngevity filed for a protective order and sactions against Wakaya Pefection’s attorney.
While the motion was pending Wakaya Perfection deposed Dave Briskie and Tom Chenault, both of whom were also asked about insider trading.
In their motion,
Youngevity argues that alleged instances of insider trading are wholly irrelevant to both parties’ claims.
Indeed, neither Wakaya Perfection or Youngevity had brought up insider trading (allegations or otherwise) up until Halls’ deposition.
That and the fact that Wakaya Perfection failed to recount a specific instance of insider trading and tie it directly to Youngevity affiliates leaving the company, saw an October 23rd order granted mostly in Youngevity’s favor.
From the order;
Nowhere in Wakaya’s answer or counterclaims is insider trading mentioned. Nor are rumors of insider trading mentioned.
Wakaya’s answer and counterclaims also do not allege that Youngevity officers provided non-public information to distributors.
In addition to Wakaya’s failure to mention insider trading in its pleadings, Wakaya has offered no evidence or examples of Youngevity distributors or employees leaving because of actual or rumored insider trading.
At oral argument, on September 28, 2017, Wakaya could not identify a single distributor or employee who left Youngevity because of actual or rumored insider trading, much less because of the specific incident of alleged insider trading Wakaya pressed at Mr. Halls’ deposition.
Furthermore, the discovery Wakaya seeks is unduly burdensome as it subjects the deponents to questions about conduct that Wakaya characterizes as criminal when it has been unable to substantiate that any criminal conduct occurred.
Insider trading requires that a trade occur in connection with the exchange of material, nonpublic information.
Despite multiple opportunities to provide the Court with evidence or examples of a trade occurring based on material inside information, Wakaya failed to do so.
Without specific examples of insider trading and those examples tied to affiliates leaving Youngevity, unfortunately the question of whether insider trading did or didn’t take place falls outside the scope of Youngevity’s lawsuit and Wakaya Perfection’s counter-claims.
The Court has issued a protective order preventing Wakaya from reopening depositions for the purpose of asking questions related to insider trading or otherwise inquiring into insider trading.
Existing depositions and answers given are to remain as is, with Youngevity given the opportunity to raise admissibility objections should Wakaya attempt to use them at trial.
Youngevity had also requested sanctions against Wakaya Perfection’s attorney for his conduct during the depositions.
Although claiming the way in which Wakaya Perfection conducted the depositions to be “very concerning” and that Wakaya’s attorney made “multiple misstatements” pertaining to securities law,
the Court finds that Mr. Anderson did not act in bad faith or with the intent to harass Mr. Halls.
Accordingly, the Court declines to impose sanctions against Mr. Anderson.
Looking forward, on October 31st previously scheduled trial dates were vacated in favor of two motion hearings scheduled for early next year (early Jan/Feb).
There are a lot of to and fro filings between Youngevity and Wakaya to keep track of, so I’ll try to keep track of only the more interesting tidbits as the case progresses.