The U.S. Securities and Exchange Commission (SEC) recently announced a settlement agreement to resolve insider-trading charges against a former pharmaceutical executive, an emergency-room physician and one of his patients.
This action is another example of how the SEC is making insider trading an enforcement priority since Mary Jo White became chairwoman last year.
The SEC alleges the parties profited from exchanging confidential information about the results of a clinical trial for a key developmental drug. The company’s chief medical officer — who was intimately involved with the clinical trial — allegedly conveyed the disappointing results of the clinical trial to the doctor shortly before the public announcement. The doctor then passed along the same information to one of his patients.
Both parties sold their shares in the drug company just ahead of the public announcement of the clinical trial results and the corresponding 70% drop in the company's stock price. This misappropriation of nonpublic information allegedly resulted in approximately $139,000 in illegal gains for the parties.
The settlement, which is subject to court approval, includes civil penalties and returning allegedly ill-gotten gains.
Illegal insider trading entails buying or selling a security while possessing nonpublic information about the security, in breach of a fiduciary duty or other relationship of trust and confidence. Violations also result when giving or “tipping” such information to others, where securities are traded by those receiving such tips, and/or if securities are traded by others misusing such information.
Organizations can minimize the risk of insider trading violations by implementing a comprehensive compliance program.