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U.S. Securities and Exchange Commission

Laura V. Eng (LE-2366)
Attorney for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
Northeast Regional Office
233 Broadway
New York, NY 10279
(646) 428-1944 (Eng)

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY



SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,

-against-

MARK FISCH and EDWARD GREGORY,

Defendants.


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03 Civ. _______ ( )
 
COMPLAINT 

Plaintiff Securities and Exchange Commission ("Commission"), for its Complaint against Defendants Mark Fisch ("Fisch"), 55 Springbrook Road, Livingston, New Jersey, 07039, and Edward Gregory ("Gregory"), 7 Laurel Oak Lane, Clifton Park, New York, 12065 (collectively the "Defendants"), alleges as follows:

SUMMARY

1. This case involves insider trading in the securities of Wyeth Inc. ("Wyeth"), a leading pharmaceutical manufacturer, by two Wyeth district sales managers, Fisch and Gregory, in advance of disappointing news that a major clinical study had found increased health risks associated with Prempro, one of Wyeth's principal products.

2. Fisch and Gregory learned the disappointing news from their supervisor during a conference call on Monday July 8, 2002. Fisch and Gregory sold their entire holdings of Wyeth stock shortly after learning the negative news, even though they were told that the information was confidential and would not be made public until the following day.

3. Specifically, on July 8, Fisch sold 3,000 shares of Wyeth stock at $49 a share, for a total of $147,000, and Gregory sold 1,000 shares at $49.16 a share, for a total of $49,160. On July 9, after the disappointing news was made public, Wyeth stock opened at $45 and fell to $36.70, before closing at $37.30. By trading before the public announcement, Fisch avoided losses of $35,100, and Gregory avoided losses of $11,860.

VIOLATIONS

4. The Defendants, directly or indirectly, singly or in concert, have engaged, and unless enjoined and restrained, will again engage, in transactions, acts, practices and courses of business that constitute violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. § 77q(a), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5.

JURISDICTION AND VENUE

5. The Commission brings this action pursuant to the authority conferred upon it by Section 20(b) of the Securities Act, 15 U.S.C. § 77t(b), and Section 21(d) of the Exchange Act, 15 U.S.C. § 78u(d), seeking a judgment: (a) permanently enjoining the Defendants from engaging in the types of transactions, acts, practices and courses of business described herein; (b) ordering the Defendants to disgorge losses avoided plus prejudgment interest thereon; (c) imposing civil penalties against the Defendants, pursuant to Section 21A(a) of the Exchange Act, 15 U.S.C. § 78u-1; and (d) granting such other relief as the Court may deem just and proper.

6. The Defendants, directly and indirectly, singly and in concert, have made use of the means or instruments of transportation or communication in, and the means or instrumentalities of, interstate commerce or of the mails in, and in connection with, the acts, practices, and courses of business alleged in this Complaint.

7. This Court has jurisdiction over this action, and venue is proper in this Court, pursuant to Section 22(a) of the Securities Act, 15 U.S.C. § 77v(a), and Section 27 of the Exchange Act, 15 U.S.C. § 78aa. Certain of the acts, practices and courses of business alleged herein took place within the District of New Jersey, including the sale of Wyeth securities.

THE DEFENDANTS

8. Fisch, age 70, is a District Manager of Sales in the Women's Health Care division of Wyeth. He supervises field sales representatives in various parts of New Jersey, and is responsible for sales of Prempro in his district. Fisch resides in Livingston, New Jersey.

9. Gregory, age 68, is a District Manager of Sales in the Women's Health Care division of Wyeth. He supervises field sales representatives in the Northeast region, including New Jersey, New York and parts of New England, and is responsible for sales of Prempro in his district. He resides in Clifton Park, New York.

RELEVANT ENTITY

10. Wyeth, a Delaware corporation headquartered in Madison, New Jersey, is engaged in the development, manufacture, and sale of pharmaceutical and consumer healthcare products. Wyeth's principal pharmaceutical products include cardiovascular treatments and women's healthcare products, such as hormone replacement therapies. Prempro, a progestin and estrogen hormone replacement therapy used to treat menopause, is one of Wyeth's most important products. Sales of Prempro and two related products generated $2.1 billion in sales in 2001, or nearly 15 percent of Wyeth's revenue during that period. Wyeth's common stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act and is traded primarily on the New York Stock Exchange. On March 11, 2002, Wyeth changed its name from American Home Products Corporation.

FACTS

A. The Women's Health Initiative Study Of Health Effects of Prempro

11. The National Heart, Lung and Blood Institute, a division of the National Institute of Health ("NIH"), conducted a large-scale long-term study of the health risks of hormone replacement therapy beginning in 1993. The study, known as the Women's Health Initiative ("WHI"), enrolled 161,809 women between the ages of 50 and 79 years in a set of clinical trials to study post-menopausal hormone use.

12. Sixteen thousand women were enrolled in an arm of the study involving Prempro to determine the risks and benefits of taking an estrogen plus progestin hormone replacement therapy. The Prempro arm of the study was intended to run until March 2005, but in mid-2002 a review panel abruptly ordered the trial stopped based on alarming evidence that the drug posed serious health risks to women. In particular, the study showed an increased risk of heart attacks, blood clots, strokes and breast cancer among patients taking Prempro.

Wyeth Managers Learn About the Negative Results of the WHI Study

13. On June 29, 2002, the principal WHI study director informed a senior Wyeth officer that the Prempro arm of the WHI study was going to be stopped. The study director indicated that NIH would hold a press conference on Tuesday July 9 to announce the study results. The study director cautioned the Wyeth officer that the information was highly confidential and should not be revealed to third parties outside Wyeth.

14. On July 2, several high level Wyeth officials met with NIH representatives to discuss the WHI study results. Following the meeting, one of the attendees advised Fisch's and Gregory's supervisor ("Supervisor") about the study, and cautioned him that the information was confidential and that trading in Wyeth stock before July 9 was prohibited.

15. At approximately 10:00 p.m. on Sunday, July 7, the Supervisor contacted his sales team to advise them of an urgent conference call the next morning. On Monday, July 8, at approximately 8:00 a.m., the Supervisor conducted a conference call with the ten members of his sales team, including Fisch and Gregory, to discuss the upcoming NIH announcement in detail. Specifically, the Supervisor told the ten participants, including Fisch and Gregory, that the Prempro arm of the WHI study was being halted due to findings of increased health risks associated with Prempro.

16. The Supervisor told the conference call participants that the news was confidential, non-public and "embargoed" - a term referring to significant news that could not be revealed to others - until the morning of July 9 when the NIH would make its announcement. The conference call lasted approximately one hour.

17. On July 7, in preparation for the conference call, the Supervisor e-mailed materials ("July 7 E-Mail") concerning the WHI study's negative findings to each of the ten members of his sales team. Documents attached to the July 7 E-Mail included a draft press release to be issued by Wyeth concerning the WHI study. The draft press release stated in substance that the Prempro arm of the WHI study was being halted because of findings of increased health risks associated with Prempro.

18. The July 7 E-Mail message itself stated that the information was confidential until further notice. In addition, attached to the July 7 E-Mail was a letter from a senior Wyeth official stating that the news concerning the WHI study was "not to be discussed or shared with anyone outside of Wyeth before Tuesday, July 9th . . ."

Dissemination of the News to the Public

19. News concerning the WHI study and the negative health risks posed by Prempro was disclosed to certain persons prior to the broad, public dissemination of the news that occurred on July 9. The Journal of the American Medical Association sent copies of an article on the WHI study, authored by a WHI official, to numerous news organizations on an embargoed basis pending the NIH Announcement on July 9.

20. Nonetheless, on July 8, after the market closed, Cox news service published information about the WHI study. On July 9, the New York Times ran a story about the results of the WHI study in a morning edition prior to the NIH press release.

21. At approximately 7:33 a.m. on July 9, Wyeth issued a press release announcing that NIH was discontinuing the Prempro arm of the WHI study "due to the increased risk of invasive breast cancer and their determination of an overall lack of long-term benefit."

22. At about 9:30 a.m. on July 9, NIH announced the negative findings of the study in a press release, stating, in pertinent part, that the NIH had "stopped early a major clinical trial of the risks and benefits of combined estrogen and progestin in healthy menopausal women due to an increased risk of invasive breast cancer . . . [and] increases in coronary heart disease, stroke, and pulmonary embolism in study participants."

Impact on Wyeth's Stock Price

23. Following the public dissemination of news about the WHI study, Wyeth's stock price fell sharply on July 9. Wyeth stock closed at $49.24 on July 8 and had traded between $45.72 and $52.24 on each of the preceding seven trading days. Wyeth stock opened at $45 on July 9 and fell to $36.70, before closing at $37.30, a decline of almost $12, or 24%, from the previous day's close. In addition, several analysts downgraded Wyeth's shares to neutral, from a previous buy rating, after the NIH announcement.

B. Stock Sales by Fisch and Gregory Before the News Became Public

24. Two Wyeth district sales managers, Fisch and Gregory, sold Wyeth stock on July 8, the day before the NIH announcement, and before the news service leaks of the WHI study results. Fisch and Gregory learned about the negative news concerning Prempro during the conference call early on the morning of July 8.

Fisch

25. Fisch participated in the July 8 conference call, and he opened the July 7 E-Mail at approximately 8:04 a.m. on July 8. At the time, Fisch owned a total of 3,000 Wyeth shares, which he obtained in May 2002 by exercising options at $16 per share.

26. Fisch's intention had been to hold those shares for one year for tax reasons, after which time he would sell the shares and use the proceeds to exercise additional options. However, Fisch changed his plans quickly once he learned the news about the WHI study. About twenty minutes after the conference call described in paragraphs 15-16, Fisch sold all 3,000 shares of Wyeth stock from his brokerage account.

27. Fisch sold the shares because he feared that Wyeth's stock price would be adversely impacted by the news concerning the WHI study. Fisch knew from experience that when bad news came out about Wyeth drugs, the impact was often a decline in the company's stock price.

28. Fisch knew that the information was confidential, embargoed, and would not become public until the following day, July 9.

29. Fisch sold his 3,000 Wyeth shares at a price of $49, for a total of $147,000. If Fisch had sold his stock at the closing price of $37.30 on July 9, after the price stabilized and the market absorbed the negative news, the total selling price would have been $111,900. By selling his stock in advance of the negative news, Fisch avoided losses of $35,100.

Gregory

30. Gregory participated in the July 8 conference call described in paragraphs 15-16, and Gregory opened the July 7 E-Mail at approximately 8:20 a.m. on July 8. At the time, Gregory owned a total of 1,000 shares of Wyeth stock, which he obtained in 2000 by exercising stock options at $16 per share.

31. Gregory sold all of his Wyeth shares on July 8, just hours after the July 8 conference call described in paragraphs 15-16. Gregory sold the stock because he believed the stock price would go down once the bad news became public.

32. Gregory knew the July 8 conference call concerned a significant event because the Supervisor had taken the very unusual step of contacting Gregory at home at around 10:00 p.m. the evening before to let him know about the call, rather than leaving a voicemail for Gregory at work, as was the custom.

33. Gregory was told on the July 8 conference call and in the July 7 E-Mail that the negative news was confidential, non-public and "embargoed." Gregory also knew that the NIH press conference publicly announcing the cessation of the WHI study would not occur until July 9, and that he was not supposed to discuss the information he learned on the conference call with anyone before that time.

34. Gregory sold his 1,000 shares of Wyeth stock at a price of $49.16, for a total of $49,160. If Gregory had sold his stock at the closing price of $37.30 on July 9, 2002, the total selling price would have been $37,300. By selling in advance of the negative news, Gregory avoided losses of $11,860.

FIRST CLAIM FOR RELIEF

Violations of Section 17(a) of the
Securities Act by Fisch and Gregory

35. The Commission realleges and incorporates by reference each and every allegation contained in paragraphs 1 through 34, as though fully set forth herein.

36. As more fully described above, Fisch and Gregory, directly or indirectly, singly or in concert, by use of the means or instruments of transportation or communication in interstate commerce, or by the use of the mails, in the offer or sale of Wyeth securities, knowingly or recklessly, has:

  1. employed devices, schemes and/or artifices to defraud;

  2. obtained money or property by means of, or otherwise made, untrue statements of material fact, or has omitted to state material facts necessary in order to make statements made, in light of the circumstances under which they were made, not misleading; and

  3. engaged in acts, transactions, practices and courses of business which operated or would have operated as a fraud or deceit upon Wyeth, purchasers of Wyeth securities, and other persons.

37. As part, and in furtherance, of this violative conduct, Fisch sold Wyeth stock while in possession of material, nonpublic information concerning the WHI's negative findings about Wyeth's drug Prempro.

38. Fisch knew, or recklessly disregarded the fact, that he was breaching a fiduciary or other similar duty arising out of his position as a Wyeth employee by selling Wyeth securities while in possession of information concerning the WHI's negative findings about Wyeth's drug Prempro.

39. When Fisch sold Wyeth stock as described in paragraphs 25 through 29, he knew, or recklessly disregarded the fact, that the information he possessed was nonpublic.

40. Fisch illicitly avoided losses by selling his Wyeth securities in advance of the public dissemination of the negative news.

41. As part, and in furtherance, of this violative conduct, Gregory sold Wyeth stock while in possession of material, nonpublic information concerning the WHI's negative findings about Wyeth's drug Prempro.

42. Gregory knew, or recklessly disregarded, that he was breaching a fiduciary or other similar duty arising out of his position as a Wyeth employee by selling Wyeth securities while in possession of information concerning the WHI's negative findings about Wyeth's drug Prempro.

43. When Gregory sold Wyeth stock as described in paragraphs 30 through 34, he knew, or recklessly disregarded the fact, that the information he possessed was nonpublic.

44. Gregory illicitly avoided losses by selling his Wyeth securities in advance of the public dissemination of the negative news.

45. By reason of the foregoing, Fisch and Gregory violated, and unless permanently enjoined, will again violate Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a).

SECOND CLAIM FOR RELIEF

Violations of Section 10(b) of the
Exchange Act and Rule 10b-5
Thereunder by Fisch and Gregory

46. The Commission realleges and incorporates by reference each and every allegation contained in paragraphs 1 through 45, as though fully set forth herein.

47. As more fully described above, Fisch and Gregory directly and indirectly, singly and in concert, knowingly or recklessly, by use of the means or instrumentalities of interstate commerce, or of the mails, in connection with the purchase or sale of Wyeth securities:

  1. employed devices, schemes, and/or artifices to defraud;

  2. made untrue statements of material fact, or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and

  3. engaged in transactions, acts, practices and courses of business, which operated as a fraud or deceit upon Wyeth, purchasers of Wyeth securities, and other persons.

48. As part, and in furtherance, of this violative conduct, Fisch sold Wyeth stock while aware of material, nonpublic information concerning the WHI's negative findings about Wyeth's drug Prempro.

49. Fisch knew, or recklessly disregarded the fact, that he was breaching a fiduciary or other similar duty arising out of his position as a Wyeth employee by selling Wyeth securities while aware of information concerning the WHI's negative findings about Wyeth's drug Prempro.

50. When Fisch sold Wyeth stock as described in paragraphs 25 through 29, he knew, or recklessly disregarded, that the information he possessed was nonpublic.

51. Fisch illicitly avoided losses by selling his Wyeth securities in advance of the public dissemination of the negative news.

52. As part, and in furtherance, of this violative conduct, Gregory sold Wyeth stock while aware of material, nonpublic information concerning the WHI's negative findings about Wyeth's drug Prempro.

53. Gregory knew, or recklessly disregarded the fact, that he was breaching a fiduciary or other similar duty arising out of his position as a Wyeth employee by selling Wyeth securities while aware of information concerning the WHI's negative findings about Wyeth's drug Prempro.

54. When Gregory sold Wyeth stock as described in paragraphs 30 through 34, he knew, or recklessly disregarded the fact, that the information he possessed was nonpublic.

55. Gregory illicitly avoided losses by selling his Wyeth securities in advance of the public dissemination of negative news.

56. By reason of the foregoing, Fisch and Gregory violated, and unless permanently enjoined, will again violate Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, thereunder.

PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully requests a Final Judgment:

I.

Permanently enjoining Fisch and Gregory and their agents, servants, employees and attorneys and all persons in active concert or participation with them who receive actual notice of the injunction by personal service or otherwise, and each of them, from future violations of Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5.

II.

Ordering Fisch to disgorge $35,100, representing the losses he avoided as a result of the violations alleged in this Complaint, plus prejudgment interest thereon.

III.

Ordering Gregory to disgorge $11,860, representing the losses he avoided as a result of the violations alleged in this Complaint, plus prejudgment interest thereon.

IV.

Ordering each of the Defendants to pay civil monetary penalties pursuant to Section 21A(a) of the Exchange Act, 15 U.S.C. § 78u-1.

V.

Granting such other and further relief as the Court may deem just and proper.

Dated: July 30, 2003
  New York, New York

 

By:________________________
Laura V. Eng (LE-2366)

Attorney for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
233 Broadway
New York, NY 10279
(646) 428-1944

Of Counsel:

Wayne M. Carlin
Edwin H. Nordlinger
Barry W. Rashkover
David Rosenfeld

 

http://www.sec.gov/litigation/complaints/comp18264.htm

Modified: 07/31/2003