United States District Court
Securities and Exchange Commission,
ANDREW S. MARKS,
Civil Action No.
Plaintiff, the United States Securities and Exchange Commission (the "Commission"), alleges that:
1. This enforcement action involves Andrew S. Marks's ("Marks") insider trading in the stock of Vertex Pharmaceuticals, Inc. ("Vertex" or the "Company"), while he was the Company's Chief Patent Counsel and highest-ranking lawyer. On September 20 and 21, 2001, Marks learned material, nonpublic information concerning Vertex's decision to suspend clinical trials of compound VX 745, an anti-inflammatory drug. On September 21, after learning this information, Marks sold 20,900 shares of Vertex for a total of $476,765.
2. The following Monday, September 24, prior to the market's open, Vertex announced its decision to suspend clinical trials of VX 745, causing Vertex's stock price to decline 23% from $23.07 at the market's close on Friday, September 21, to $17.74 at themarket's close on Monday, September 24. By selling on September 21, Marks avoided a loss of $105,999.
3. By virtue of his conduct, Marks violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. Accordingly, the Commission seeks (i) entry of a permanent injunction prohibiting Marks from further violations of the federal securities laws; (ii) equitable disgorgement equal to the ill-gotten gains and/or loss avoided by Marks's illegal insider trading, plus pre-judgment interest; (iii) the imposition of a civil monetary penalty of up to three times the ill-gotten gains and/or loss avoided; and (iv) an order prohibiting Marks from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act, or that is required to file reports pursuant to Section 15(d) of the Exchange Act.
4. The Commission brings this action pursuant to the enforcement authority conferred upon it by Sections 20(b) and 20(d) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d)] and Sections 21(d) and 21A of the Exchange Act [15 U.S.C. §§ 78u(d), 78u-1].
5. This Court has jurisdiction over this action pursuant to Section 22(a) of the Securities Act [15 U.S.C. §§ 77v(a)] and Sections 21(e), 21A and 27 of the Exchange Act [15 U.S.C. §§78u(e), 78u-1 and 78aa]. Venue is proper in this District because Marks resides here and the acts and practices alleged in this Complaint primarily occurred here.
6. Marks, directly or indirectly, has made use of the means and instrumentalities of interstate commerce, of the mails, of the facilities of a national securities exchange, and/or of themeans and instruments of transportation or communication in interstate commerce, in connection with the acts, practices and courses of business alleged herein.
7. Marks, unless enjoined, will continue to engage in the acts, practices, transactions, and courses of business alleged herein, or in acts, practices, and courses of business of similar object and purpose.
8. Marks, age 42, is a resident of Wayland, Massachusetts. He started working at Vertex in June 1997 as a Patent Counsel. Marks was promoted to Senior Patent Counsel in December 1998 and to Chief Patent Counsel in 1999. Marks holds a B.S. degree in Animal Sciences, a Ph.D. in Cell and Molecular Biology, and a J.D. degree, and is a member of the New York bar.
9. Vertex is and was, at all relevant times, a biotechnology company based in Cambridge, Massachusetts. Vertex's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act [15 U.S.C. §78l(g)] and is traded principally on the NASDAQ National Market System under the symbol VRTX.
10. As Chief Patent Counsel, Marks had primary responsibility for oversight of the Company's patents. Among other things, he helped prepare the patent discussions contained in the Form 10-Ks that the Company filed with the Commission. He was also entrusted with the supervision of other members of Vertex's law department staff.
11. As the highest-ranking lawyer on Vertex's staff from in or about June, 2001 until September 24, 2001, Marks was also frequently consulted on matters other than patent issues. For example, beginning in early July, 2001, Marks was tasked by the Company's Chief Executive Officer to consider requests by employees to trade in company stock and to determine whether such requests raised concerns about insider trading.
12. In the summer of 2001, Vertex was conducting clinical and non-clinical trials of a compound designated VX 745, one of a family of anti-inflammatory drugs known as p38 MAP kinase inhibitors. In early August 2001, Vertex discovered that animals exposed to VX 745 in the course of long-term, high dose studies showed evidence of adverse neurological effects. A period of internal review ensued and, on September 7, 2001, Vertex's CEO decided to suspend further clinical trials of VX 745. That same day, the CEO informed Vertex's Vice President for Corporate Communications of the decision and assigned her to prepare an appropriate announcement.
13. On September 13, 2001, Vertex's Vice President for Corporate Communications met with her assistant, the Director of Corporate Communications ("Communications Director"), and asked him to draft the press release.
14. By late morning on Thursday, September 20, the Communications Director had prepared a draft of the press release, which was to be released the following Monday, September 24, and he planned to circulate it by e-mail to approximately a dozen senior Vertex executives, including Marks, for their review. The Communications Director had included Marks on thedistribution list because, as Vertex's highest-ranking lawyer, Marks was routinely consulted on public announcements whether or not they related to patent matters.
15. Believing that Marks did not already know about the decision to suspend VX 745 trials, the Communications Director walked to Marks's office before sending around the e-mail, so that Marks would understand the significance of the e-mail when Marks received it. The Communications Director told Marks about the decision to suspend the VX 745 clinical trials, the proposed press release, and the timing of the announcement. The Communications Director then returned to his office and just after noon, at 12:11 p.m., he e-mailed the draft press release to Marks and others. (Exhibit A hereto).
16. Vertex's CEO replied to the e-mail approximately ten minutes later, noting that Vertex might want to include in the press release a lengthy status update concerning its many other research projects in order to suggest that the VX 745 news was "a hiccup."
17. At 12:26 p.m., Marks, in turn, commented by e-mail:
I have to agree with [the CEO] in principle here. No matter how you spin it, this will not be viewed favorably by Wall Street. I think it is imperative that we do whatever we can connected to this release to shore up damage control. Not sure how effective a many page update would be, but we need more that [sic] the boilerplate this time. Continuing to review the release from a legal perspective and will get back to you all on that aspect.
18. Later on Thursday, September 20, Vertex's CEO consulted Marks in his capacity as the Vertex attorney designated to handle issues arising in connection with the Company's securities trading policy. At 5:21 p.m., the CEO sent Marks an e-mail concerning an employee'srequest to sell his Vertex shares. Vertex's CEO consulted Marks because of the imminent VX 745 announcement, expressing his view that the employee's timing was "awkward." At 5:36 p.m., Marks responded to the CEO by e-mail as follows:
Make sure . . . . [t]hat [the employee] has no knowledge of the [VX 745 draft] press release [the Communications Director] has been sending around (not sure how to ask him without giving him the info. Maybe ask if he is aware of any anticipated press releases in the next few weeks). I guess that I am troubled about any employee trading prior to that release because it is likely to have an effect on the stock (looks like I can't sell any shares) and, depending on the degree of that effect, could create the perception of insider trading. What do you think?
(Exhibit B hereto, emphasis added.) Vertex's CEO replied to Marks with a 5:50 p.m. e-mail, stating that while it might look bad if the employee were to sell, he thought the employee was insulated enough and the amount was low enough that the perception of insider trading should not be an issue. At 6:27 p.m., Marks wrote back to say that he would let the employee go ahead and make the sale, explaining, "I am comfortable enough once you confirm he had no knowledge of the press release. " (Exhibit B.)
19. At 7:24 p.m. on Thursday, September 20, Vertex's CEO e-mailed Marks and other executives, requesting that they attend a meeting in his office at 11:30 a.m. the next day, to discuss the proposed press release. Marks replied to the e-mail on Friday, September 21, at 9:48 a.m., stating that he would attend the meeting.
20. The meeting ended up starting around noon and lasted about an hour, with Marks in attendance throughout. During the meeting, there was a discussion, in which Marksparticipated, concerning the need to limit distribution of the information contained in the press release to essential Vertex personnel until after the trading markets closed on September 21.
21. In September 2001, Marks maintained several securities brokerage accounts, including two accounts at Lehman Brothers, Inc. ("Lehman"), one of which held 20,900 shares of Vertex.
22. On the morning of September 21, 2001, Marks spoke by telephone with his broker at Lehman and directed him to sell all of the stock and close out the options positions in his two Lehman accounts. The broker asked Marks to rethink this request and held off from selling the stock. Some time later on the morning of September 21, Marks again spoke with the broker and reaffirmed his decision to sell all of his stock in the Lehman accounts. With this, at approximately 11:02 a.m., Marks's broker placed an initial order to sell 10,900 shares of Vertex on behalf of Marks.
23. Later that day, after Marks had attended the meeting concerning the press release, Marks's broker again spoke with Marks and told him that although he had sold some of Marks's Vertex shares, he had yet not sold all of them. The broker asked Marks if he still wanted him to sell the rest. During this conversation, Marks reaffirmed his desire to sell all of his Vertex shares. At approximately 3:24 p.m., the broker placed a second order for Marks, this time to sell 10,000 shares of Vertex.
24. As a result of his discussions, which occurred over the course of September 21,
Marks sold 20,900 shares of Vertex for a total of $476,765. The sales were executed in several lots between 3:29 and 3:48 p.m. on September 21, less than 24 hours after Marks hadacknowledged in his email to the CEO that he could not sell any of his Galileo shares due to his knowledge of the impending press release.
25. As Vertex's Chief Patent Counsel and highest-ranking lawyer, Marks was at all relevant times, an insider of Vertex who had a fiduciary duty to the Company and its shareholders not to trade in the Company's stock while in possession of material, nonpublic information about the Company, including the information he learned about the suspension of the VX 745 clinical trials.
26. Marks was also subject to Vertex's corporate insider trading policy, which prohibited all directors, executive officers and related persons from trading in the company's stock while in possession of material, non-public information. Marks received a copy of this policy shortly after joining Vertex in 1997 and signed an acknowledgment that he had read it.
27. Further, in or about November 2000, January 2001 and again in March 2001, the individual then serving as Vertex's corporate counsel distributed memoranda to Marks and other Vertex employees informing them of the provisions of Vertex's insider trading policy and either providing a copy of the policy or directing them to its location on Vertex's intranet site for future reference.
28. Moreover, as the highest-ranking lawyer at Vertex from June 2001 until September 24, 2001, Marks was the attorney designated for employees to consult regarding compliance with Vertex's employee securities trading policy and he had such responsibility when he engaged in the trades he made on September 21.
29. In breach of his duty to the Company and its shareholders, and in violation of the Company's securities trading policy, Marks traded in the Company's stock while in possession of material, nonpublic information on September 21, 2001.
30. At approximately 7:10 a.m. on Monday, September 24, as planned, Vertex issued its press release, stating that it had suspended the current clinical development of its p38 MAP kinase inhibitor VX-745 targeting inflammatory disease. On September 24, the Company's stock closed at $17.74, down $5.33, or 23%, on volume of 9.8 million shares, more than eight times the average daily volume for the prior 10 trading days. By selling all his Vertex stock on the prior business day, Marks had avoided a loss of $105,999.
31. The Commission repeats and realleges paragraphs 1 through 30 above.
32. As set forth above, Marks obtained material, nonpublic information about Vertex and then, on September 21, 2001, sold Vertex stock on the basis of that information.
33. By reason of the foregoing, Marks, directly or indirectly, in connection with the purchase or sale of securities, by use of means and instrumentalities of interstate commerce, or of the mails, or any facility of any national securities exchange: (a) employed devices, schemes or artifices to defraud; (b) made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (c) engaged in acts, practices or courses of business which operated or would operate as a fraud or deceit upon any persons, including purchasers of Marks'sVertex stock, in violation of 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].
34. The Commission repeats and realleges paragraphs 1 through 30 above.
35. As set forth above, Marks obtained material, nonpublic information about Vertex and then, on September 21, 2001, sold Vertex stock on the basis of that information.
36. By reason of the foregoing, Marks, directly or indirectly, in the offer or sale of securities, by use of means or instruments of transportation or communication in interstate commerce or by the use of the mails, in the offer or sale of securities: (a) employed devices, schemes or artifices to defraud; (b) obtained money or property by means of untrue statements of material fact or omissions to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (c) engaged in transactions, practices or courses of business which operated as a fraud or deceit upon the purchaser of securities in violation of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].
37. Accordingly, the Commission respectfully requests that this Court issue a Final Judgment of Permanent Injunction and Other Relief:
A. Permanently restraining and enjoining Marks, his agents, servants, employees, attorneys, successors and assigns, and those persons in active concert or participation with them, and each of them, from violating, directly or indirectly, Section 17(a) of the SecuritiesAct [15 U.S.C. § 77q(a)] and 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];
B. Ordering Marks to disgorge the ill-gotten gains and/or loss avoided by his September 21, 2001 sale of Vertex stock, as described above, plus pre-judgment interest;
C. Ordering Marks to pay civil penalties, pursuant to the Insider Trading Sanctions Act of 1984, codified at Section 21A of the Exchange Act, as amended [15 U.S.C. §78u-1], of up to three times the amount of his ill-gotten gains and/or loss avoided as a result of his illegal trading; and pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)];
D. Pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and Section 21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)], prohibiting Marks from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act [15 U.S.C. § 78l], or that is required to file reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d)];
E. Retaining jurisdiction over this action to implement and carry out the terms of all orders and decrees that may be entered; and
F. Granting such other and further relief as this Court may deem just and proper.
Juan Marcel Marcelino
Luke Cadigan (BBO# No. 561117)
Senior Trial Counsel
David E. Butler (BBO# No. 549721)
Senior Enforcement Attorney
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
73 Tremont Street, Suite 600
Boston, MA 02108
(617) 424-5900 ext. 203 (Cadigan)
ext. 613 (Butler)
(617) 424-5940 fax
Dated: December 3, 2002
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