Biotech Employee Settles SEC Charges for Insider Trading

A research scientist settled SEC charges for trading on material nonpublic information. The information concerned an FDA delay in approving a cancer therapy.

According to the cease-and-desist Order, an Associate Director of Immunology at a clinical-stage biotechnology company attended an internal video conference where executives disclosed that the FDA would not approve the company's bladder cancer treatment by the target date. The SEC alleged that less than an hour after learning this confidential information, and again the following morning, the employee purchased out-of-the-money put options, effectively betting the stock price would fall.

The SEC stated that when the company publicly disclosed the FDA's decision the next day, the stock price plummeted approximately 55%. The SEC found that the employee sold his options immediately, netting over $41,000 in illicit profits. The SEC noted that this conduct also violated the company's insider trading policies—which explicitly prohibited trading during blackout periods and trading in derivatives—and breached the duty of trust the Respondent owed to his employer.

As a result, the SEC charged the employee with violating SEA Section 10(b) ("Regulation of the Use of manipulative and deceptive devices") and Rule 10b-5 ("Employment of manipulative and deceptive devices") thereunder.

The employee agreed to a cease-and-desist Order and agreed to pay disgorgement of $41,008, prejudgment interest of $4,133.85, and a civil money penalty of $41,008.