SEC and DOJ Bring Parallel Cases Alleging $8 Million Serial Insider-Trading Scheme

Winstead PC

Winstead PC

Today the SEC [1] and the DOJ [2] announced civil and criminal charges involving an alleged brazen $8 million insider-trading scheme.   The trader, Dayakar Mallu, allegedly traded ahead of four public announcements by his former employer, Mylan N.V., between October 3, 2017, and July 29, 2019.  He allegedly obtained material nonpublic information from a friend who still worked at Mylar at the time.  The tipper is described only as a “Mylan insider” in the SEC press release, but the DOJ press release calls him an unnamed co-conspirator.

Mallu’s alleged insider trading enabled him to generate gains and avoid losses totaling over $8 million through well-timed options trades.  The SEC’s complaint maintains that Mallu obtained material nonpublic information about Mylan’s unannounced earnings, drug approvals by the FDA, and impending merger with another company.  According to the SEC, he then shared a portion of his trading profits with the tipper by making cash payments abroad.

The SEC alleges that Mallu attempted to conceal his trading scheme by using secure messaging apps and foreign cash payments.    The SEC press release said that these attempts failed because of “the agency’s ability to use sophisticated data analysis to detect suspicious trading pattern and identify the traders behind them.”

Mallu has consented to the entry of an injunction against further violations of Section 10(b) of the Securities Exchange Act and Exchange Act Rule 10b-5 and a bar from serving as an officer or director of a public company.  In the parallel criminal case, Mallu pleaded guilty to insider trading and aiding in the preparation of a false tax return.  He is scheduled to be sentenced on January 24, 2022.  There is no word yet as to charges facing the tipper/unnamed coconspirator.

[1] SEC Announcement | SEC Charges Former Pharmaceutical Global IT Manager in $8 Million Insider Trading Scheme

[2] DOJ Announcement  |  Former Information Technology Executive Pleads Guilty to Insider Trading and Aiding in the Preparation of a False Tax Return

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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