U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20564 / May 12, 2008
Securities and Exchange Commission v. Zachariah P. Zachariah, et al., Civil Action No. 08-60698-CIV-DIMITROULEAS/ROSENBAUM (S.D. FL) (May 12, 2008)
The Securities and Exchange Commission filed a civil action today in the United States District Court for the Southern District of Florida against Dr. Zachariah P. Zachariah (Zachariah), Dr. Mammen P. Zachariah (M. Zachariah), and Dr. Sheldon Nassberg, alleging that they engaged in illegal insider trading from which they reaped a total of more than a half-million dollars in profits from their illicit scheme. All three defendants reside and practice medicine in the Ft. Lauderdale, Florida area.
The SEC's complaint concerns illegal trading in the shares of two unrelated companies. In the first, the complaint alleges that Zachariah breached his fiduciary duty to IVAX and its shareholders only a few months after being appointed to serve as a company director. IVAX's then-chairman and CEO called Zachariah and other IVAX directors on July 6, 2005 after agreeing with the then-CEO of Teva Pharmaceuticals Ltd. on preliminary terms for Teva to acquire IVAX. Within minutes of that call, and even though IVAX was in a "blackout" period during which the company forbade officers and directors from trading in IVAX stock, Zachariah placed the first of four separate IVAX stock purchase orders that he made in his online brokerage account that day. Zachariah purchased 35,000 shares of IVAX stock at a cost of approximately $730,000.
The SEC further alleges that Zachariah later unlawfully tipped his brother, M. Zachariah, who purchased 2,000 shares of IVAX stock at a total cost of approximately $46,000 on the last trading day before IVAX announced on July 25, 2005 that Teva would acquire it.
According to the SEC's complaint, Zachariah's IVAX stock purchases were not the first time that he engaged in illegal trading while in possession of non-public information. He also misappropriated material, non-public information about Sarasota, Fla.-based Correctional Services Corporation, which operated correctional and detention facilities.
The SEC's complaint alleges that from May through July 2005, Zachariah bought over $200,000 worth of Correctional shares and his brother and close friend, Nassberg, each made multiple purchases of Correctional stock in the week leading up to a public announcement on July 14, 2005, by The GEO Group, Inc., that it would acquire Correctional. Zachariah, a GEO consultant, obtained material, non-public information about a GEO-Correctional deal either from his consulting relationship or from one or more of the GEO insiders with whom he had a familial or other close, personal relationship. Zachariah supplied the inside information to his brother and Nassberg, who purchased approximately $162,000 worth and $32,000 worth of Correctional stock, respectively.
The SEC alleges that the defendants violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks a judgment against all defendants providing for injunctions, disgorgement of their ill-gotten gains with prejudgment interest, and civil money penalties. The complaint also seeks an order prohibiting Zachariah from serving as an officer or director of a public company.
The Commission acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) in this matter.