UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION Securities Exchange Act of 1934 Release No. 39844 / April 9, 1998 Administrative Proceedings File No. 3-9574 : In the Matter of :ORDER INSTITUTING CEASE-AND- :DESIST PROCEEDINGS PURSUANT TO Jeffrey Price and :SECTION 21C OF THE SECURITIES Michael Ostrach, :EXCHANGE ACT OF 1934, MAKING :FINDINGS AND IMPOSING :CEASE-AND-DESIST ORDER Respondents. : : I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that cease and desist proceedings be instituted pursuant to section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Jeffrey Price ("Price") and Michael Ostrach ("Ostrach"). II. In anticipation of the institution of these proceedings, Price and Ostrach have submitted Offers of Settlement that the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R.  201.1 et seq., and without admitting or denying the facts, findings or conclusions herein, except as to jurisdiction of the Commission over them and over the subject matters of this proceeding, which they admit, Price and Ostrach consent to the entry of this Order Instituting Cease-And-Desist Proceedings Pursuant To Section 21C Of The Securities Exchange Act of 1934, Making Findings And Imposing Cease-And-Desist Order ("Order"). III. Accordingly, IT IS ORDERED that a cease-and-desist proceeding pursuant to section 21C of the Exchange Act be, and hereby is, instituted. IV. The Commission makes the following findings:[1] A.Respondents 1.Jeffrey Price served as President of Neurobiological Technologies Inc. ("NTI") since October 1990, and was named CEO in April 1991. Price also served on NTI's Board of Directors. In May 1997, Price was named Executive Vice President and Chief Scientist, and in September 1997, Price resigned from NTI. 2.Michael Ostrach joined NTI in June 1994 as Executive Vice President and Chief Operating Officer. Ostrach also served on NTI's Board of Directors. In November 1996, Ostrach resigned from NTI. B.Other Relevant Entity Neurobiological Technologies Inc., a Delaware corporation founded in 1987 and headquartered in Richmond, California, develops therapeutic biomedical products. NTI's common stock is registered with the Commission pursuant to section 12(g) of the Exchange Act, and was traded at the relevant time on the National Market System of the Nasdaq Stock Market, Inc. ("Nasdaq"). C.Facts 1.Chronology of the Offering In September 1995, NTI began working on a primary offering. On January 2, 1996, the Board of Directors formally authorized NTI to proceed with the offering. Between January 9 and January 25, NTI and the underwriters made presentations to potential institutional investors, during which time the underwriters developed a "book" of institutional interest. Of the approximately thirty institutions eventually listed, five of the largest conditioned their participation on the offering price being no more than $3.50 per share. On at least two occasions between January 25 and the pricing meeting on January 30, 1996, the underwriters provided Price and Ostrach a list of the institutional investors and their limit prices, if any, that Price and Ostrach then discussed with the underwriters. The Registration Statement relating to the offering was declared effective on Tuesday, January 30, 1996 at 1:15 p.m.,[2] and at approximately 1:30 p.m., a meeting was convened to finalize the size and price of the offering.[3] The underwriters proposed increasing the offering by 400,000 shares to 2,400,000, and pricing it at $3.50 for gross proceeds of $8,400,000. After discussion among themselves and with the underwriters, NTI's representatives, including Price and Ostrach, authorized the underwriters to increase the offering to 2,400,000 shares and price it at $3.50 per share. The syndicate manager for the offering then left the meeting to publicly announce the offering terms, leaving the others in attendance to finalize the documents. Shortly thereafter, Price and Ostrach stated to those in attendance that they had purchased NTI common stock that day, and that Ostrach had purchased NTI common stock two trading days earlier. Following a discussion of the issues raised by Price and Ostrach's purchases, NTI postponed the offering. Price and Ostrach directed NTI's counsel to contact Nasdaq and the Commission on January 31, 1996 to inform them of the purchases by Price and Ostrach and to halt trading in NTI's stock. NTI thereafter issued a press release announcing that it had postponed the public offering. On February 8, 1996, NTI filed Post-Effective Amendment No. 1 to the Registration Statement that included a description of Price and Ostrach's purchases during the offering and acknowledged the Commission's investigation of these purchases. The Registration Statement was declared effective on February 15, 1996. NTI proceeded with an offering of 2,200,000 shares at $3.25 per share generating gross proceeds of $7,150,000. 2.Price and Ostrach's Trading During the Offering Price and Ostrach purchased a total of 1,600 shares of the Company's stock in five separate open-market transactions on January 30, 1996, the day of the pricing meeting, and on the preceding Friday.[4] Price and Ostrach's purchases were as follows: **FOOTNOTES** [1]:The findings herein are made pursuant to Respondents' Offers of Settlement and are not binding on any other person or entity in this or any other proceeding. [2]:All times in this memorandum are Pacific Time. [3]:Price and Ostrach, among others, attended this meeting on behalf of NTI. [4]:Price and Ostrach's purchases constituted a significant portion of the trading activity for January 26 and 30, 1996, as a percentage of actual daily trading volume: ------------------------------------------- Shares Actual % Date Volume Actual Purchased ------------------------------------------- January 26, 200 3,100 6.5% 1996 ------------------------------------------- January 30, 1,400 9,100 15.4% 1996 ------------------------------------------- ---------------------------------------------------------- Previous Trader Date Time Quantity Price Trade (PST) Price ---------------------------------------------------------- Ostrach January 26, 9:34 200 $3.75 $3.375 1996 a.m. (Friday) ---------------------------------------------------------- Ostrach January 30, 9:14 200 $4.00 $3.50 1996 a.m. (Tuesday) ---------------------------------------------------------- Price January 30, 11:32 250 $4.00 $3.50 1996 a.m. ---------------------------------------------------------- Price January 30, 12:42 750 $3.875 $3.5625 1996 p.m. ---------------------------------------------------------- Ostrach January 30, 12:45 200 $4.00 $3.50 1996 p.m. ---------------------------------------------------------- The timing and execution of Price and Ostrach's trades increased the reported sales price of NTI common stock. As the foregoing indicates, the purchases were made in five separate transactions, each of which caused an "uptick" in the reported sales price over the immediately preceding trade. Four of the purchases were on the actual day of the pricing; the last trades by Price and Ostrach were made minutes apart after the pricing meeting had been scheduled. Ostrach's 12:45 p.m. PST purchase of 200 shares for $4.00 per share was the last trade prior to the pricing meeting and the last of the trading day. NTI's policy required officers and directors to pre-clear any trades in NTI stock with Price. Both Price and Ostrach were aware of NTI's pre-clearance policy, yet they did not preclear their trades with anyone. D.Price and Ostrach Violated Rule 10b-6 of the Exchange Act[5] Rule 10b-6 prohibited "participants" in a stock offering from purchasing securities in the offering for their own account until after their participation in the distribution was complete. Rule 10b-6 also carved out exceptions to this general rule that do not apply to this case. Price and Ostrach purchased NTI securities during the offering. As the President/Chief Executive Officer and Executive Vice President/Chief Operating Officer of NTI, Price and Ostrach were "participants" in the offering for purposes of Rule 10b-6. Price and Ostrach purchased 1,600 shares of NTI common stock in a manner that increased the reported sales price of NTI common stock. Price and Ostrach knew, or were reckless in not knowing, that such purchases were prohibited. Accordingly, the Commission finds that Ostrach and Price violated Rule 10b-6 of the Exchange Act, 17 C.F.R.  240.10b-6. V. Based on the foregoing, the Commission finds that it is appropriate to accept Price and Ostrach's Offers of Settlement and to impose the sanctions specified therein. Accordingly, IT IS HEREBY ORDERED, pursuant to section 21C of the Exchange Act, that Price and Ostrach shall cease and desist from committing or causing any violation and any future violation of Rule 102 of Regulation M, 17 C.F.R.  242.102. By the Commission. Jonathan G. Katz Secretary **FOOTNOTES** [5]:On December 18, 1996, the Commission adopted a comprehensive revision of Rules 10b-6, 10b-7, 10b-8 and 10b-21, that became effective on March 4, 1997. Securities Exchange Act Release No. 38067 (December 20, 1996). Among other things, these amendments deemed Rules 101 and 102 under Regulation M as successor rules to Rule 10b-6. Accordingly, this Order, at paragraph V below, directs respondents to cease-and-desist from violating Rule 102 of Regulation M, 17 C.F.R.  242.102.