Securities and Exchange Commission
Litigation Release No. 17767 / October 3, 2002
U.S. Securities and Exchange Commission v. Thomas M. Gibson, et. al., Civil Action No. 02C7082 ( D. Coar, J.)(U.S. Dist. Ct. N.D. Ill., filed October 3, 2002)
SEC Files Insider Trading Case Against Thomas Gibson and the Estate of Harry Krause
On October 3, 2002, the U.S. Securities and Exchange Commission filed civil fraud charges in the U.S. District Court for the Northern District of Illinois against Thomas Gibson and the Estate of Harry Krause alleging insider trading in the securities of Cell Pathways, Inc. prior to the announcement on September 22, 2000 that the Food and Drug Administration (FDA) had denied Cell Pathways' New Drug Application for Aptosyn, its principal product. According to the complaint, Thomas Gibson tipped Harry Krause concerning the pending disclosure. Armed with the information, Harry Krause sold all 22,000 shares of his Cell Pathways stock and avoided losses of over $400,000.
The Commission's complaint alleges that on September 20, 2000, Thomas Gibson, a former director of Cell Pathways, learned that the FDA had denied Cell Pathways' New Drug Application. According to the complaint, within minutes of learning the news, Thomas Gibson called his longtime friend Harry Krause, who is now deceased, and tipped him. The complaint alleges that Harry Krause then made multiple phone calls to his broker and ordered him to sell all 22,000 shares of his Cell Pathways stock. On the morning of September 21, 2000 all 22,000 shares of Harry Krause's Cell Pathways stock were sold. On September 22, 2000 after the market closed, Cell Pathways issued a press release announcing the FDA's decision. Cell Pathways' stock price plummeted 70% after the disclosure and Harry Krause ultimately avoided losses of over $400,000.
The Commission is seeking a permanent injunction, disgorgement with prejudgment interest, an officer/ director bar, and a civil penalty against Thomas Gibson for violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission also seeks disgorgement and prejudgment interest from the Estate of Harry Krause. Named as Relief Defendants in this matter are Harry Krause's three children, J.R. Henry Conrad Krause, Elizabeth A. Kallal, and Georgia R. Krause.
The Commission would like to thank the National Association of Securities Dealers for its assistance in this matter.