TWO CLINICAL DRUG TRIAL DOCTORS CHARGED BY SEC WITH INSIDER TRADING IN BIOPHARMA STOCK

FROM: U.D.  SECURITIES AND EXCHANGE COMMISSION 

SEC Charges Two Clinical Drug Trial Doctors with Insider Trading

The Securities and Exchange Commission today announced charges against Dr. Franklin M. Chu and Dr. Daniel J. Lama of San Bernardino Urological Associates Medical Group ("SBUA"), San Bernardino, California, for insider trading in the securities of GTx Inc., a biopharmaceutical company based in Memphis Tennessee. The SEC's complaints against Dr. Chu and Dr. Lama were filed in U.S. District Court for the Central District of California.

The SEC alleges that Drs. Chu and Lama were medical investigators in the clinical trials of Capesaris, a drug GTx developed for the treatment of prostate cancer. As alleged in the complaints, the purpose of the clinical trials was to test the safety and efficacy of Capesaris in anticipation of GTx applying for approval of the drug by the Food and Drug Administration ("FDA"). According to the complaints, beginning in early 2011, GTx entered into a series of Clinical Trial Agreements ("CTA") with SBUA, Chu's and Lama's medical practice, pursuant to which GTx paid compensation to SBUA for each patient the practice enrolled in the study. As alleged in the complaints, the CTAs contained strict confidentiality provisions that prohibited Drs. Chu and Lama from using confidential information about the clinical trials for any purpose other than rendering services under the CTAs.

The SEC alleges that on Friday February 17, 2012, Chu and Lama each learned material, nonpublic information from GTx that the FDA was placing a hold on the Capesaris clinical trials because of concerns of an increased risk of blood clots in patients participating in the clinical trials. The SEC further alleges that immediately after learning this confidential information, and in breach of their duty to GTx, Chu and Lama each sold shares of GTx stock they held personal accounts. According to the complaints, Chu sold 16,000 shares of GTx stock, and Lama sold 5,400 shares of GTx stock, at an average sale price of $5.82 per share. As alleged in the complaints, on Tuesday February 21, 2012, after GTx publicly announced the FDA hold on the Capesaris clinical trials, the market price of GTx stock dropped over 36% and closed at $3.69 per share. The SEC alleges that as a result of trading on material, nonpublic information about the FDA hold prior to the public announcement, Chu and Lama each avoided trading losses of approximately $34,081 and $11,502, respectively. The SEC further alleges that when later contacted by SEC staff investigating this matter, Lama initially provided false information, including claiming that he had no knowledge of the FDA hold at the time of his trading. To settle the SEC's charges, Dr. Chu and Dr. Lama have each consented to the entry of a final judgment, which are subject to court approval. Dr. Chu has consented to a final judgment that permanently enjoins him from future violations of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933 ("Securities Act"), and orders him to pay disgorgement of $34,081, plus prejudgment interest of $2,014, and a one-time civil penalty of $34,081. Dr. Lama has consented to a final judgment that permanently enjoins him from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 17(a) of the Securities Act, and orders him to pay disgorgement of $11,502, plus prejudgment interest of $680, and a three-time civil penalty of $34,506.

SEC CHARGES FORMER EXECUTIVE WITH INSIDER TRADING IN ADVANCE OF eBAY ACQUISITION OF E-COMMERCE COMPANY

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged a former executive with insider trading in advance of eBay’s acquisition of the e-commerce company where he worked by tipping friends and relatives with confidential information about the pending deal so they could attain more than $300,000 in illegal profits.

In a case that the SEC unraveled in part due to extensive cooperation by some of the tippees, the SEC also charged five traders and entered into a non-prosecution agreement with a trader who provided extraordinary cooperation in the investigation.  It’s the agency’s first non-prosecution agreement with an individual.  The SEC’s investigation is continuing into trading by other individuals.
The SEC alleges that Christopher Saridakis violated a duty of trust as CEO of the marketing solutions division of GSI Commerce by providing two family members and two friends with nonpublic information about the pending acquisition and encouraging them to trade on it.  To settle the SEC’s charges, Saridakis agreed to an officer-and-director bar and must pay $664,822, which includes a penalty equal to twice the amount of his tippees’ profits.  In a parallel action, the U.S. Attorney’s Office for the Eastern District of Pennsylvania today announced criminal charges against Saridakis, who lives in Delaware.

The five traders and the individual who entered into a non-prosecution agreement will pay a combined total of more than $490,000 in their settlements, which range from disgorgement-only or reduced penalties for cooperators to penalties of two or three times the trading profits for other traders.

“Although Saridakis’ tips spun a web of illegal trading, some of the downstream tippees substantially assisted in our investigation while others hindered it,” said Andrew J. Ceresney, director of the SEC’s Division of Enforcement.  “The reduction in penalties for those tippees who assisted us, together with the non-prosecution agreement for one of the traders, demonstrate the benefits of cooperating with our investigations.  The increased penalties for others highlight the risks of impeding our work.”

Scott Friestad, associate director of the SEC’s Division of Enforcement, added, “Saridakis chose to dole out confidential, market-moving information to enrich relatives and friends, and the nonpublic details then spread further through multiple levels of tippers and tippees.  The SEC thoroughly investigates suspicious trading to trace it to the source and pursue all those involved.”

According to the SEC’s complaint filed in federal court in Philadelphia, GSI Commerce was renamed eBay Enterprise after the merger and is still based in King of Prussia, Pa.  When the deal was publicly announced on March 28, 2011, GSI’s stock price increased more than 50 percent.  Saridakis became aware of negotiations between GSI and eBay in early 2011, and his involvement increased when he participated in a meeting between eBay and GSI executives on March 11.  GSI took steps to ensure the pending deal remained secret, and Saridakis understood that any information concerning the potential acquisition was confidential.

The SEC alleges that Saridakis, who became president of eBay Enterprise after the merger and has since resigned, tipped two family members in the weeks leading up to eBay’s acquisition of GSI.  The relatives made a combined $41,060 by trading on the nonpublic information provided by Saridakis, who in his settlement has agreed to pay disgorgement of that amount plus interest on behalf of those family members.

According to the SEC’s complaint, Saridakis tipped his longtime friend and former colleague Jules Gardner, who lives in Villanova, Pa.  The two regularly exchanged text messages during the weeks leading up to the merger, including an exchange one week before the public announcement in which Saradakis encouraged Gardner to buy shares in GSI.  Gardner discussed the text messages from Saridakis with two friends who also traded.  Gardner has agreed to fully disgorge his ill-gotten gains of $259,054 as part of a cooperation agreement in which the SEC is not seeking a penalty.  Gardner agreed to continue cooperating in the ongoing investigation.

The SEC alleges that Saridakis separately tipped his friend Suken Shah, a doctor who resides in Wilmington, Del., with nonpublic information about the deal following the March 11 meeting with eBay executives.  Shah earned insider trading profits of $9,838 and provided the nonpublic information to his brother and another individual.  Shah agreed to settle the SEC’s charges in an administrative proceeding by paying disgorgement of $10,446, which includes $609 in trading profits made by the other individual he tipped.  Shah agreed to pay prejudgment interest of $1,007 and a penalty of $64,965 for a total of $76,418.  Shah’s penalty is three times the amount of his and his tippees’ trading profits.

In a separate settled administrative proceeding, the SEC charged Shimul Shah, a doctor who now resides in Cincinnati, with insider trading on the nonpublic information he received from his brother.  Besides trading himself, Shah tipped others with the nonpublic information during a group dinner he attended with several friends from his medical residency.  To settle the SEC’s charges, Shah agreed to disgorge his trading profit of $11,209 and pay prejudgment interest of $1,022 and a penalty of $22,418 for a total of $34,650.  Shah’s penalty is twice the amount of his trading profit.

The individual who entered into the non-prosecution agreement was tipped by Shah at the group dinner.  This individual has agreed to disgorge a trading profit of $31,777 and pay $2,725 in prejudgment interest for a total of $34,502.  The SEC entered into a non-prosecution agreement because this individual provided early, extraordinary, and unconditional cooperation.

The SEC also instituted settled administrative proceedings against two other traders in GSI stock who received material nonpublic information from a different source than Saridakis.  The SEC’s investigation found that the wife of another insider at GSI became aware of the proposed acquisition and shared the news with a friend the weekend before the public announcement.  The friend shared the information with Oded Gabay, who then tipped his friend Aharon Yehuda.  Gabay and Yehuda, who live in New York, each proceeded to trade GSI stock the following Monday morning.

Gabay agreed to settle the SEC’s charges by disgorging his trading profit of $23,615 and paying prejudgment interest of $1,207 and a penalty of $22,177 for a total of $46,999.  Gabay’s penalty was reduced to half the amount of his and Yehuda’s trading profits to reflect his early cooperation in the investigation.  Yehuda agreed to settle the SEC’s charges by disgorging his trading profit of $20,740 and paying prejudgment interest of $1,666 and a penalty of $20,740 for a total of $43,146.

The SEC’s investigation has been conducted by Jessica Medina and Virginia Rosado Desilets, and supervised by Jeffrey Finnell.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of Pennsylvania, Federal Bureau of Investigation, Financial Industry Regulatory Authority, and Options Regulatory Surveillance Authority.

FRIENDS CHARGED WITH TRADING ON INSIDER INFORMATION

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged two friends with insider trading on confidential information from an investment banker about an impending transaction between engineering and construction companies.

The SEC alleges that Walter D. Wagner of Rockville, Md., and Alexander J. Osborn of Alexandria, Va., illicitly profited by nearly $1 million combined by trading on nonpublic information in advance of the acquisition of The Shaw Group by Chicago Bridge & Iron Company.  Wagner was tipped by his longtime friend John W. Femenia, who worked at a firm that was considering whether to finance the transaction.  Wagner then tipped Osborn with the inside information so they could each trade heavily in Shaw Group securities ahead of the public announcement on July 30, 2012, when the closing stock price jumped approximately 55 percent from the previous day.

Wagner has agreed to settle the SEC’s charges by disgorging his ill-gotten gains plus interest.  Any additional financial penalty will be decided by the court at a later date.  A parallel criminal action against Wagner was announced today by the U.S. Attorney’s Office for the Western District of North Carolina.

The SEC’s litigation continues against Osborn.  The SEC already charged Femenia in a related insider trading case.  He was subsequently barred from the securities industry.

“Wagner and Osborn had never bought stock or call options in The Shaw Group, yet they suddenly spent significant portions of their available cash resources to make sizeable purchases in the weeks preceding the public announcement of the acquisition,” said William P. Hicks, associate director for enforcement in the SEC’s Atlanta Regional Office.  “The SEC is committed to deciphering the stories behind suspicious trades and exposing those who trade on confidential information obtained from corporate insiders.”

According to the SEC’s complaint filed in federal court in Greenbelt, Md., all three attended the U.S. Merchant Marine Academy.  Wagner and Femenia met in college and remained friends after graduating in 2003.  Osborn, who graduated in 2006, became friends with Wagner around 2009 when they worked in the same office building for different government contractors.  The SEC alleges that Femenia collected nonpublic details about the acquisition while at work and communicated them to Wagner via text messages and phone calls in violation of the duty he owed his firm to keep the information confidential.  Wagner knew Femenia was employed in investment banking at Wells Fargo Securities.  Wagner in turn tipped Osborn, who knew that Wagner’s source was employed in the finance industry.  Wagner and Osborn used the nonpublic information to obtain illegal trading profits of approximately $517,784 and $439,830 respectively.

The SEC’s complaint charges Wagner and Osborn with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In addition to the financial sanction of $528,175 in disgorgement and prejudgment interest, Wagner has consented to the entry of a judgment permanently enjoining him from violations of Section 10(b) of the Exchange Act and Rule 10b-5.

The SEC’s investigation was conducted by Monifa F. Wright and supervised by Matthew F. McNamara in the Atlanta Regional Office.  The SEC’s litigation is being handled by Paul T. Kim.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Western District of North Carolina, Federal Bureau of Investigation, Financial Industry Regulatory Authority, and Options Regulatory Surveillance Authority.

SEC CHARGES TRADER WITH INSIDER TRADING OF STOCK IN A CHINESE COMPANY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
The Securities and Exchange Commission charged a Miami-based trader with insider trading in the stock of a Chinese company and conducting illegal short sales in the securities of three other companies.

The SEC alleges that Charles Raymond Langston III learned confidential information in advance of a public announcement that significantly decreased the value of AutoChina International’s stock.  Langston was solicited by placement agents to invest in a secondary offering of AutoChina stock.  Despite agreeing to keep information confidential and not trade on it, he promptly sold short 29,000 shares of AutoChina stock in advance of the company’s public announcement that it had completed the secondary offering.  To avoid detection, Langston made the trades through an entity he owned using a different broker and different account than he used to purchase shares in AutoChina’s initial offering.  Langston made $193,108 in illegal profits by trading on the inside information.

“Langston agreed to keep confidential the information he learned from AutoChina’s placement agent and abstain from trading on it.  Yet he chose to place personal greed ahead of the integrity of the securities markets,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.

The SEC’s complaint filed in federal court in Miami further alleges that Langston and two of his companies, Guarantee Reinsurance and CRL Management, violated Rule 105 of Regulation M, which prohibits the short sale of an equity security during a restricted period – generally five business days before a public offering – and the purchase of that same security through the offering.  The rule addresses illegal short selling that can reduce offering proceeds received by companies by artificially depressing the market price shortly before the company prices its public offering.  The SEC alleges that Langston through Guarantee Reinsurance and CRL Management made short sales in advance of separate secondary offerings by Wells Fargo, Mitsubishi UFJ Financial Group, and Alcoa.  He purchased shares in the same offerings.  Langston and his companies’ violations of Rule 105 resulted in unlawful gains of more than $1.3 million.

“During restricted periods, Langston and his companies executed short sales that gamed the system and resulted in illegal profits,” said Glenn S. Gordon, associate director for enforcement in the SEC’s Miami Regional Office.  “The SEC is resolutely committed to pursuing those who violate Rule 105.”

Langston has agreed to settle the insider trading charges by paying disgorgement of $193,108, prejudgment interest of $22,204, and a penalty of $193,108.  Langston and the two companies also agreed to be enjoined for the short selling violations with monetary sanctions to be determined by the court at a later date.  Langston neither admits nor denies the allegations that he violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Rule 105 of Regulation M of the Exchange Act.

The SEC’s case against Langston and his companies was investigated by Andre J. Zamorano and Kathleen Strandell in the Miami office, and supervised by Thierry Olivier Desmet.  The SEC’s litigation is being led by Christopher E. Martin.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

SEC CHARGES FILMMAKER WITH INSIDER TRADING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged a Manhattan-based independent filmmaker with insider trading on confidential information about impending takeovers of two biotechnology companies.

The SEC alleges that Lawrence Robbins reaped illicit profits by trading Millennium Pharmaceuticals Inc. and Sepracor Inc. securities based on confidential information that he received from his business partner John Michael Bennett in advance of the acquisition announcements by the two companies.  Bennett had received the inside information from his friend Scott Allen.  The SEC previously charged Bennett and Allen for their roles in the scheme.

Robbins, who lives in New York City, has agreed to settle the SEC’s charges by paying more than $1 million.

“Robbins plotted with his business partner to perpetrate an insider trading scheme that enabled him to invest a portion of his illegal profits in their film production company,” said Sanjay Wadhwa, Senior Associate Director for Enforcement in the SEC’s New York Regional Office.  “Their plot, however, did not account for the real world consequences of being caught by the SEC.”

According to the SEC’s complaint filed in federal court in Manhattan, Allen learned confidential information in advance of the two acquisitions through his job at a global consulting firm that was advising the acquiring company in each deal.  Based on the information that Allen leaked, Robbins and Bennett collectively spent tens of thousands of dollars acquiring call options in the companies.  They made more than $2.6 million in illicit profits following public announcements of the deals, and Robbins used a portion of his proceeds to fund the independent film production business that he shared with Bennett.

The SEC alleges that Allen communicated with Bennett about the Millennium and Sepracor transactions through phone calls or in-person meetings, some of which were tracked through their simultaneous use of Metrocards at subway stations in New York City as well as large ATM and bank cash withdrawals made by Bennett prior to the meetings.  Allen first obtained non-public information about the Millennium transaction in mid-February 2008 when his firm began advising Japan-based Takeda Pharmaceutical Company during its negotiations with Millennium.  On February 27, Allen tipped Bennett with inside information about Takeda’s impending cash tender offer, and Bennett then tipped Robbins.  Starting on February 29 and continuing up until the week before the public announcement of the acquisition, Robbins and Bennett spent tens of thousands of dollars amassing Millennium call options.  Additionally, Robbins purchased Millennium shares and sold Millennium put options.  After the deal was publicly announced on April 10, the price of Millennium shares increased more than 48 percent, and that afternoon Robbins began liquidating his holdings of Millennium securities for ill-gotten gains of more than $1.12 million.  Bennett liquidated his Millennium holdings for illicit profits of more $602,000.

The SEC further alleges that in May 2009, Allen participated in due diligence work for the Japanese firm Dainippon Sumitomo Pharma Co. Ltd. (DSP) in connection with its impending acquisition of Sepracor.  Allen again tipped Bennett with inside information about the upcoming transaction, and Bennett again shared the information with Robbins.  In the months leading up to the September 3 public announcement that DSP had agreed to acquire Sepracor, Robbins and Bennett purchased more than $350,000 worth of call options in Sepracor.  Additionally, they sold tens of thousands of dollars of Sepracor put options, and Robbins purchased Sepracor shares.  Following the public announcement, Sepracor's stock price rose more than 26 percent, and both Robbins and Bennett liquidated their entire positions in Sepracor for ill-gotten profits of more than $388,000 and $516,000 respectively.

The SEC’s complaint charges Robbins with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 14(e) of the Exchange Act and Rule 14e-3.  Robbins has agreed to pay $865,000 in disgorgement and prejudgment interest and a $150,000 penalty.  The settlement, which is subject to court approval, takes into account Robbins’s current financial condition.  Without admitting or denying the allegations in the complaint, Robbins also agreed to be permanently enjoined from future violations of these provisions of the federal securities laws.

The SEC’s case continues against Allen and Bennett, who have now pled guilty in parallel criminal actions filed by the U.S. Attorney’s Office for the Southern District of New York.

The SEC’s investigation was conducted by Charles D. Riely of the SEC’s Market Abuse Unit in New York and Layla Mayer, Sandra Yanez, and Amelia A. Cottrell in the New York Regional Office.  The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Southern District of New York, Federal Bureau of Investigation, Options Regulatory Surveillance Authority, and Financial Industry Regulatory Authority.

TRADING SECURITIES IN THE "DARK POOL"

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Oct. 3, 2012 — The Securities and Exchange Commission today charged Boston-based dark pool operator eBX LLC with failing to protect the confidential trading information of its subscribers and failing to disclose to all subscribers that it allowed an outside firm to use their confidential trading information.

According to the SEC’s order instituting a settled administrative proceeding, eBX operates the alternative trading system LeveL ATS, which it calls a "dark pool" trading program. Dark pools do not display quotations to the public, meaning that investors who subscribe to a dark pool have access to potential trade opportunities that other investors using public markets do not. eBX inaccurately informed its subscribers that their flow of orders to buy or sell securities would be kept confidential and not shared outside of LeveL. eBX instead allowed an outside technology firm to use information about LeveL subscribers’ unexecuted orders for its own business purposes. The outside firm’s separate order routing business therefore received an information advantage over other LeveL subscribers because it was able to use its knowledge of their orders to make routing decisions for its own customers’ orders and increase its execution rate. eBX had insufficient safeguards and procedures to protect subscribers’ confidential trading information.

eBX agreed to pay an $800,000 penalty to settle the charges.

"Dark pools are dark for a reason: buyers and sellers expect confidentiality of their trading information," said Robert Khuzami, Director of the SEC’s Division of Enforcement. "Many eBX subscribers didn’t get the benefit of that bargain – they were unaware that another order routing system was given exclusive access to trading information that it used for its own benefit."

According to the SEC’s order, eBX and the outside firm it hired to run LeveL signed a subscription agreement in February 2008, after which the outside firm’s separate order routing business began to use certain LeveL subscribers’ confidential trading data. In November 2008, eBX signed a new agreement with the outside firm that allowed its order routing business to remember and use all LeveL subscribers’ unexecuted order information. As a result of the agreements, the outside firm’s order routing business began to fill far more of its orders than other LeveL users did. Its order router also knew how other eBX subscribers’ orders in LeveL were priced and could use that information to determine whether to route orders to LeveL or another venue based on where it knew it might get a better price for its own customers’ orders.

According to the SEC’s order, eBX failed to disclose in required SEC filings that it allowed LeveL subscribers’ unexecuted order information to be shared outside of LeveL.

In addition to the $800,000 penalty, eBX was censured and ordered to cease and desist from committing or causing further violations of certain provisions of the federal securities laws regulating alternative trading systems.

The SEC’s investigation was conducted by Mark Gera, James Goldman, Kathleen Shields, and Dawn Edick in the SEC’s Boston Regional Office. Mr. Gera led the related examination with assistance from Paul D’Amico and Rhonda Wilson under the supervision of Associate Regional Director Lucile Corkery.