Decision in brief: Kraft, Enforcement Proceeding, Sanctions and Costs, July 2, 2024

In an earlier decision, the Tribunal decided that Michael Kraft broke the rule against disclosing certain confidential information (“tipping”). He told his friend, Michael Stein, about a planned expansion by WeedMD Inc. before that information was public. Michael Stein broke the rule against insider trading. He bought WeedMD shares and then sold them for a profit after WeedMD publicly announced the expansion.

In this decision, the Tribunal decided what sanctions and costs should be ordered against Kraft and Stein for their misconduct.

The Tribunal decided that Kraft may not act as a director or officer of any issuer or registrant for four years and may not trade securities for three years. Stein may not act as a director or officer of any issuer or registrant for three years and may not trade securities for four years. The length of their bans reflects that Kraft’s misconduct relates to his role as an officer and director and Stein’s misconduct relates to trading. The bans balance the seriousness of the respondents’ misconduct with the disproportionate impact that lengthier bans would likely have on each of their careers in the capital markets.

The Tribunal decided that Kraft and Stein should pay administrative penalties to the Commission. Kraft must pay $200,000. Stein must pay $150,000. These amounts are comparable to previous Tribunal decisions relating to insider trading and tipping and reflect their misconduct.

These sanctions will send a message to the respondents, and to others, that insider trading and tipping will not be tolerated.

Stein agreed with the Commission that he should disgorge (give up to the Commission) the profit he earned from his insider trading ($29,345).

Finally, the Tribunal dealt with costs. Stein agreed with the Commission that he should pay $50,000 in costs.  

Kraft must pay the $150,000 in costs requested by the Commission. This amount reflects a discount of approximately 43% from the total costs the Commission says relate to Kraft, and is reasonable in the circumstances.