The SEC obtained a split verdict from a jury against two brothers in an insider trading case. Specifically, the Commission prevailed on Exchange Act Section 14(e) claims against each but lost its Section 10(b) claims. The case centered on a tender offer by French pharmaceutical company Sanofi-Aventis for Tennessee based drug distributor, Chattem, Inc. SEC v. Jacobs, Civil Action No. 1:13-cv-1289 (N.D. Ohio).

The defendants are Andrew Jacobs and Leslie Jacobs. Andrew is the vice-president and general manager for U.S. customers for a large company. His brother Leslie is a vice president at a national bank. Andrew and Blair Ramey, the vice president of marketing at Chattem, had been good friends since graduate school. They married sisters.

Sanofi initially approached Chattem in early September 2009 regarding a possible relationship. By mid-November Sanofi expressed interest in acquiring Chattem at a price of $85 to $90 per share. Chattem was interested but at a higher price. By the end of the month each company had retained financial advisers and legal counsel. Confidentiality and exclusivity agreements were completed. Due diligence began.

On December 1, 2009 senior management from each company met for face-to-face due diligence. Blair Ramey attended this meeting. He had been aware of the discussions through his position with his employer since October.

Following the December 1 meeting, Mr. Ramey flew to Bentonville, Arkansas for business meetings. He had a decision to make if the tender offer was completed – should he stay and perhaps risk being replaced and then terminated or leave and take a generous buy-out package. In Bentonville he learned that Andrew was in town. The two men met in a hotel room. During the meeting Mr. Ramey asked his friend, who had been employed by a U.S. company that was acquired by an overseas entity, a series of questions about such transactions and the impact on employees. He did not state his company was being acquired, although he cautioned Andrew to keep the conversation confidential. That was not unusual since the two men frequently discussed confidential matters. The next day Mr. Ramey called his friend to reiterate the admonition regarding confidentiality.

On Friday, December 4, 2009 Leslie Jacobs purchased 2,000 shares of Chatem at a cost of $136,579.85. This was the largest securities purchase he had made in the last eight years. It also represented a “rare foray into the stock of a consumer product company, as most of his other investments were in the energy sector.” The purchase was made, the complaint claimed, based on information obtained from his brother and Leslie knew, or was reckless in not knowing that the source of the tip was Mr. Ramey.

Following the deal announcement the Leslie sold the stock, yielding profits of $49,457.21. The complaint alleged violations of Exchange Act Sections 10(b) and 14(e). The Court will consider remedies at a later date. This is the eighth case the Commission brought arising out of this transaction. See Lit. Rel. 22937 (March 7, 2014).