SEC Charges Six in $41M Insider Trading Scheme
The SEC charged three brothers and three associates with orchestrating a market manipulation and insider trading ring involving pharmaceutical stocks and stolen clinical trial data.
According to a complaint filed in the U.S. District Court for the District of New Jersey, the defendants manipulated the share prices of two pharmaceutical companies. The SEC alleged that the brothers impersonated physicians to steal confidential information regarding clinical trials. The SEC claimed the brothers stole the identities of cancer patients from online forums and published falsified clinical trial results, artificially inflating the company's stock price to sell their positions for a profit.
The SEC claimed the operation also included an insider trading scheme facilitated by a co-defendant employed as an investment banker. The SEC alleged that the banker misappropriated material nonpublic information from his firm regarding nine potential corporate acquisitions and tipped the brothers. This, they said, allowed the ring to purchase securities of the target companies before the deals were announced. The SEC said that this pattern of manipulation and insider trading occurred over a nearly four-year period, generating approximately $41 million in illicit profits.
The SEC charged the defendants with violations of SA Section 17(a) ("Use of interstate commerce for the purpose of fraud or deceit") and SEA Section 10(b) ("Regulation of the use of manipulative and deceptive devices"); and 14(e) ("Proxies"), as well as SEA Rules 10b-5 ("Employment of manipulative and deceptive devices") and 14e-3 ("Transactions in securities on the basis of material, nonpublic information in the context of tender offers").
The SEC is seeking (i) permanent injunctions, (ii) disgorgement of ill-gotten gains with prejudgment interest, (iii) civil penalties, and (iv) a permanent bar prohibiting the investment banker defendant from acting as or being associated with any broker, dealer, or investment adviser.
In a parallel action, the U.S. Attorney’s Office for the District of New Jersey has announced criminal charges against the brothers and their associates.