The SEC charged a former Information Technology ("IT") manager of a pharmaceutical company with trading on material nonpublic information. The non-public information concerned an upcoming merger, pending FDA drug approvals, and financial performance.
In a complaint filed in the U.S. District Court for the Western District of Pennsylvania, the SEC alleged that between September 2017 and July 2019 the former IT manager was tipped material nonpublic information by a senior manager at the company. The SEC stated that the senior manager notified the former IT manager of the company's impending announcement of (i) FDA approval of two company products - a multiple sclerosis treatment and a generic asthma treatment - and (ii) the company's merger with another pharmaceutical company. The SEC found that the senior manager communicated to the former IT manager that these announcements would positively impact the company's stock price, leading the former IT manager to purchase call options contracts of the company prior to the announcements.
In addition, the SEC alleged that the senior manager notified the former IT manager that the company would announce quarterly earnings that reflected "lower-than-expected" financial performance, which led the former IT manager to sell some of the company's call options and buy some of its put options prior to the announcement.
The SEC also alleged that, in exchange for material nonpublic information, the senior manager directed the IT manager to make in-person, cash payments in India to the senior manager or individuals he designated to avoid detection.
The SEC charged the IT manager with violating Section 10(b) ("Regulation of the Use of manipulative and deceptive devices") of the Exchange Act and SEA Rule 10b-5 ("Employment of manipulative and deceptive devices") and is seeking (i) permanent enjoinment, (ii) the imposition of a civil monetary penalty and (iii) an officer and director bar.
In a related action, the former IT manager pleaded guilty to DOJ charges of securities and tax fraud.