The SEC today laid civil insider trading charges against a BP executive who (they allege) had information about the magnitude of the Deepwater Horizon oil spill before that information was public.

They allege that:
 

On April 29 and 30, 2010, while in possession of this material, nonpublic information, and in breach of duties owed to BP and its shareholders, Seilhan caused to be sold his and his family’s entire $1 million portfolio of BP securities. Specifically, Defendant caused to be sold his and his family’s holdings in the BP Stock Fund, a fund consisting almost entirely of BP American Depository Shares (“ADSs”), held in Defendant’s and his family’s retirement accounts at BP. In addition, Defendant exercised three different sets of options to purchase BP ADSs and immediately sold the underlying shares. 

This was nine to ten days after the explosion and Deepwater Horizon was already on the front page.

The main argument for the story was that when he sold the "official" leakage rate was about 5,000 barrels of oil per day. This was adjusted upwards eventually to over 50,000 barrels per day and the defendant knew that the real flow rate was higher than the publicly stated flow rate.

Here is what the WSJ story said a day before the share sales:

Vast swaths of reddish brown were visible Monday afternoon from a Coast Guard helicopter hovering 400 feet above the drilling site, where the small armada of ships hired by BP worked to collect the oil. A few miles away, a C-130 airplane released chemicals to disperse the long column of oil. A lighter sheen seemed to stretch to the horizon. 

Wildlife is already starting to be affected, and three sperm whales have been spotted in the area that is covered by an oily sheen. 

Cleanup crews from Louisiana to Florida are setting up booms intended to block as much oil as possible from coming ashore, said Steve Benz, chief executive of Marine Spill Response Corp., an industry-funded nonprofit company that cleans up spills. The crews are also preparing to clean up any oil that does come ashore.

Investors are growing worried about the rising costs associated with shutting off the well and cleaning up the spill. BP's American depository shares fell 3.3% to $57.91 in 4 p.m. Monday New York Stock Exchange composite trading, as other large oil companies rose in value.

The public information seemed at the time more-than-a-bit dire. Here is a picture from the WSJ of the size of the oil spill the day before the BP executive sold his shares:
 

The spill stretched about 100 miles and I suspect simple maths might have told you the spill was fairly large.

The share sales happened nine and ten days after the oil spill - and when - and I remember it at the time - BP completely dominated the financial blogosphere.

I am struggling here to see what the case might be. This is a civil case. If it were a criminal case I would have a very hard time convicting. The executive was - like many executives - overweight his company's shares and saw his career and financial wealth dissolving. He waited until the WSJ had a fairly accurate picture of the problem and then sold his shares.

As far as I can see civil insider trading is when the case is too weak for Preet Bharara and the SEC doesn't want to seem useless. In other words it is when the government ruins someones life without enough evidence for a criminal conviction.

This is - or at least should be - a criminal case. Or it should be dropped. I would go for dropped but the SEC might have better information than me. But in that case they should be convincing Mr Bharara and I would be all-in-favour of the Attorney trying the case.