U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20268 / September 5, 2007
SEC v. Patricia B. Rocklage, William M. Beaver and David G. Jones, Civil Action No. 05-10074-MEL (D. Mass.)
Federal Court Enters Judgments in Insider Trader Action Against Wife of Former CEO of Massachusetts Pharmaceutical Company and Two Others
The Securities and Exchange Commission announced that, on August 30, 2007, a Massachusetts federal court entered Final Judgments by consent against Patricia B. Rocklage, William M. Beaver and David G. Jones in connection with an insider trading case involving trading in the common stock of Massachusetts-based Cubist Pharmaceuticals, Inc. The final judgments enjoin Rocklage, Beaver and Jones from violating the antifraud provisions of the securities laws and order them to pay disgorgement, prejudgment interest and civil penalties.
On January 12, 2005, the Commission filed a complaint alleging that, on December 31, 2001, Scott M. Rocklage, who was at that time Cubist's Chairman and CEO, informed his wife, Patricia Rocklage, that the results of a clinical trial on one of Cubist's most important products, Cidecin (now known as Cubicin), were negative. The complaint further alleged that, unbeknownst to her husband, Ms. Rocklage had a pre-existing understanding with her brother, Beaver, whereby she would give him "a wink and a nod" if she ever became aware of any bad news about Cubist that might affect its stock price. According to the complaint, shortly after learning about the trial results, Ms. Rocklage told her husband that she intended to signal Beaver to sell his Cubist stock, and Scott Rocklage urged his wife to not communicate with Beaver about the trial results. The complaint alleged that, notwithstanding her husband's entreaties, by no later than the morning of January 2, 2002, Ms. Rocklage provided "a wink and a nod" to Beaver, who, at approximately 10:00 a.m. that day, sold all 5,583 shares of Cubist stock that he owned or controlled. The complaint further alleged that, after receiving the signal from his sister, Beaver tipped his friend and neighbor, Jones. Jones then proceeded to sell all 7,500 shares of Cubist stock that he owned on the morning of January 3, 2002. Following the announcement of the trial results on January 16, 2002, after the market closed, Cubist's stock price dropped by 46%, from a closing price of $31.75 that day to a closing price of $17.02 on January 17, 2002. The complaint alleged that, by selling when they did, Beaver and Jones avoided losses of $99,527 and $133,222, respectively.
Previously, the District Court rejected the defendants' motion to dismiss the Commission's complaint, and the United States Court of Appeals for the First Circuit affirmed that decision on November 14, 2006. The defendants had argued that, after she received the inside information, Ms. Rocklage's disclosure to her husband that she was going to tip her brother negated any liability under insider trading case law. The First Circuit rejected this argument and ruled that the Commission had stated a valid claim against the defendants and affirmed the District Court's rejection of the defendants' motion to dismiss.
Ms. Rocklage, Beaver and Jones have agreed to settle the charges against them without admitting or denying the allegations contained in the Commission's complaint. Under the terms of the settlement, each of the defendants has consented to the entry of a final judgment permanently enjoining them from violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The judgments, entered by the Honorable Morris E. Lasker of the United States District Court for the District of Massachusetts, also order Ms. Rocklage and Beaver, jointly and severally, to disgorge $99,527, representing Beaver's loss avoided, plus $36,643 in prejudgment interest thereon, and require Ms. Rocklage, Beaver and Jones, jointly and severally, to disgorge $133,222, representing Jones' loss avoided, plus $49,049 in prejudgment interest thereon. In addition, the judgments order Ms. Rocklage to pay a civil penalty of $99,527, Beaver to pay a civil penalty of $232,749 and Jones to pay a civil penalty of $133,222.
The Commission acknowledges the assistance provided by the NASD in this matter.
For further information, see Lit. Rel. No. 19032 (January 13, 2005).