U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20646 / July 16, 2008
Securities and Exchange Commission v. William J. Rauch, Case No. CV 08 3416 JCS (N.D. Cal. filed July 15, 2008)
SEC Charges Mayor of Beaufort, S.C., With Insider Trading in Stock of Biotech Company
The Securities and Exchange Commission today charged the mayor of Beaufort, S.C., with insider trading on non-public information that he obtained while doing consulting work for a California biotechnology company. According to the Commission's complaint, Mayor William J. Rauch purchased stock in Advanced Cell Technology, Inc., immediately after one of its executives informed him about a breakthrough embryonic stem cell technique that the company was about to disclose publicly. Rauch was told the information was confidential, and he had previously signed an agreement with the company that barred him from using confidential company information for his own benefit. Rauch has agreed to settle the Commission's charges without admitting or denying the allegations.
The Commission's complaint, filed in federal court in San Francisco, alleges that an Advanced Cell Technology executive told Rauch on August 3, 2006, that a science journal would soon be publishing an article reporting Advanced Cell's development of a new technique for creating stem cell lines without harming embryos, which the company believed might alleviate concerns about stem cell technology.
According to the Commission's complaint, Rauch called a securities broker and opened accounts in his name and his children's names on the same day he received the confidential information. On August 9 and 14, after further discussions with the Advanced Cell executive, Rauch telephoned his broker and purchased more than $11,000 of Advanced Cell stock in his children's accounts. On August 23, Advanced Cell publicly announced its embryonic stem cell development, and its stock price jumped 360 percent from $0.40 to $1.83 per share. The stock price declined to $0.96 per share on August 25, still 140 percent above the price just before the announcement. Even with the price decline, Rauch's potential profit on his stock purchases two weeks earlier, had he sold, was more than $20,000.
Without admitting or denying the Commission's allegations, Rauch has consented to an injunction from future violations of Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder and has agreed to pay $20,708 in disgorgement, $2,576 in prejudgment interest, and a $20,708 penalty.
The Commission acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) in this matter.