The SEC charged two individuals with insider trading in connection with a biopharmaceutical company's announcement of negative clinical trial results.
In a Complaint filed in the U.S. District Court for the Southern District of New York, the SEC alleged that the senior project manager of clinical trials at the company ("Defendant A") tipped her longtime partner ("Defendant B") about the trial's negative efficacy results before the company made the information public. The SEC alleged that Defendant B liquidated his entire position before the results were publicly disclosed and tipped a relative, who also sold all of his shares. The company's stock dropped approximately 50% after the results of the trial were publicly announced. According to the SEC, Defendant B avoided $103,875 in losses and his relative avoided losses of $14,434.
As a result, the SEC charged the individuals with violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and SEA Rule 10b-5 ("Employment of Manipulative and Deceptive Devices") thereunder.
To settle the charges, the defendants agreed to the entry of a final judgment (i) permanently enjoining the individuals from further violations and (ii) ordering Defendant A to pay a $103,875 civil monetary penalty and Defendant B to pay a $222,184 civil monetary penalty. The proposed settlement is subject to court approval.
Commentary Kyle DeYoung
While this is a pretty straightforward case, it provides another data point on the SEC's approach to financial remedies in insider cases in the aftermath of the Supreme Court's ruling in Liu. Here, the tipper agreed to pay a penalty equal to the losses avoided by her partner ($103,875) while the tippee agreed to pay a penalty equal to twice the amount of the losses he avoided ($207,750), plus the losses avoided by the relative he tipped ($14,434). Before Liu, the tippee would have likely paid the same total amount, but it would have been divided between disgorgement in the amount of the losses avoided and a civil money penalty.
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