SEC Charges Independent Filmmaker With Insider Trading
The Securities and Exchange Commission today charged a Manhattan-based independent filmmaker with insider trading on confidential information about impending takeovers of two biotechnology companies.
The SEC alleges that Lawrence Robbins reaped illicit profits by trading Millennium Pharmaceuticals Inc. and Sepracor Inc. securities based on confidential information that he received from his business partner John Michael Bennett in advance of the acquisition announcements by the two companies. Bennett had received the inside information from his friend Scott Allen. The SEC previously charged Bennett and Allen for their roles in the scheme.
Robbins, who lives in New York City, has agreed to settle the SEC’s charges by paying more than $1 million.
“Robbins plotted with his business partner to perpetrate an insider trading scheme that enabled him to invest a portion of his illegal profits in their film production company,” said Sanjay Wadhwa, Senior Associate Director for Enforcement in the SEC’s New York Regional Office. “Their plot, however, did not account for the real world consequences of being caught by the SEC.”
According to the SEC’s complaint filed in federal court in Manhattan, Allen learned confidential information in advance of the two acquisitions through his job at a global consulting firm that was advising the acquiring company in each deal. Based on the information that Allen leaked, Robbins and Bennett collectively spent tens of thousands of dollars acquiring call options in the companies. They made more than $2.6 million in illicit profits following public announcements of the deals, and Robbins used a portion of his proceeds to fund the independent film production business that he shared with Bennett.
The SEC alleges that Allen communicated with Bennett about the Millennium and Sepracor transactions through phone calls or in-person meetings, some of which were tracked through their simultaneous use of Metrocards at subway stations in New York City as well as large ATM and bank cash withdrawals made by Bennett prior to the meetings. Allen first obtained non-public information about the Millennium transaction in mid-February 2008 when his firm began advising Japan-based Takeda Pharmaceutical Company during its negotiations with Millennium. On February 27, Allen tipped Bennett with inside information about Takeda’s impending cash tender offer, and Bennett then tipped Robbins. Starting on February 29 and continuing up until the week before the public announcement of the acquisition, Robbins and Bennett spent tens of thousands of dollars amassing Millennium call options. Additionally, Robbins purchased Millennium shares and sold Millennium put options. After the deal was publicly announced on April 10, the price of Millennium shares increased more than 48 percent, and that afternoon Robbins began liquidating his holdings of Millennium securities for ill-gotten gains of more than $1.12 million. Bennett liquidated his Millennium holdings for illicit profits of more $602,000.
The SEC further alleges that in May 2009, Allen participated in due diligence work for the Japanese firm Dainippon Sumitomo Pharma Co. Ltd. (DSP) in connection with its impending acquisition of Sepracor. Allen again tipped Bennett with inside information about the upcoming transaction, and Bennett again shared the information with Robbins. In the months leading up to the September 3 public announcement that DSP had agreed to acquire Sepracor, Robbins and Bennett purchased more than $350,000 worth of call options in Sepracor. Additionally, they sold tens of thousands of dollars of Sepracor put options, and Robbins purchased Sepracor shares. Following the public announcement, Sepracor's stock price rose more than 26 percent, and both Robbins and Bennett liquidated their entire positions in Sepracor for ill-gotten profits of more than $388,000 and $516,000 respectively.
The SEC’s complaint charges Robbins with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 14(e) of the Exchange Act and Rule 14e-3. Robbins has agreed to pay $865,000 in disgorgement and prejudgment interest and a $150,000 penalty. The settlement, which is subject to court approval, takes into account Robbins’s current financial condition. Without admitting or denying the allegations in the complaint, Robbins also agreed to be permanently enjoined from future violations of these provisions of the federal securities laws.
The SEC’s case continues against Allen and Bennett, who have now pled guilty in parallel criminal actions filed by the U.S. Attorney’s Office for the Southern District of New York.
The SEC’s investigation was conducted by Charles D. Riely of the SEC’s Market Abuse Unit in New York and Layla Mayer, Sandra Yanez, and Amelia A. Cottrell in the New York Regional Office. The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Southern District of New York, Federal Bureau of Investigation, Options Regulatory Surveillance Authority, and Financial Industry Regulatory Authority.