Compliance, Enforcement, News

Consultant to Biotech Company Settles Insider Trading Claim

You cannot trade on material, non-public informatin that you obtained as a result of your employment, or as an outside consultant . Period, end discussion.

By Mark Astarita

While the SEC‘s complaints are simply allegations, which need to be proven in court, the fact that an employee is charged with insider trading has significant ramifications, including the potential loss of employment, fines, legal fees to fight the charges and in some cases, as here, criminal charges.

We have had success in conducting our own investigation on behalf of our clients accused of insider trading, and reaching a resolution with the SEC (including convincing the Staff that there is no case), but that process is time consuming.

We have successfully convinced the Staff on multiple occasions that what appears to be insider trading is hard work and diligent research, which it often is. But it takes time and money to present a case that is strong enough to avoid prosecution, or to win at trial

You are much better off not trading your employer’s stock. There are plenty of investment opportunities without the downside risk of an SEC injunctive action.

The most recent example is the SEC’s announcement this week that it has charged a medical school professor, acting as a consultant to a biotech company with insider trading in the securities of that company in advance of the company’s November 10, 2020 announcement that it had achieved positive drug trial results for its flagship cancer drug Bemarituzumab.

The SEC’s complaint alleges that the consultant was working as a lead clinical investigator for the company’s Bemarituzumab drug trial. Through this role, he allegedly learned material nonpublic information about the positive drug trial results for Bemarituzumab. According to the SEC, shortly after he allegedly learned of the positive results, he purchased 8,743 shares of the company. After it publicly announced the positive drug trial results, the Compan share price increased over 300%. The next day, he allegedly sold all of his shares, realizing illicit gains of $134,142.

The SEC does not win all of its cases, and it may very well be that the professor had other reasons to purchase the stock. Assuming he did have legitimate reasons, the smarter play would have been to avoid this entire controversy, and simply decide “this looks like a great investment, but I worked for the company on this project, and it might look like insider trading. I’ll buy the S&P instead and avoid any potential lawsuits.”

Rather than doing so, the professor was a defendant in an SEC case, and according to the press release settled with the SEC, after the complain was filed, agreeing to a permanent injunction and to pay a civil penalty in an amount to be determined by the court.

Odds are that the penalty is in excess of $400,000 – a statutory penalty plus THREE TIMES the profit his trading generated.

And, adding to the injury, according to the SEC’s press release the U.S. Attorney’s Office for the Northern District of Illinois today announced criminal charges against Catenacci.

Read the Full Press Release


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