U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22996 / May 19, 2014
SEC v. Franklin M. Chu, Civil Action No. 5:14-cv-00995 (C.D. Cal.)
SEC v. Daniel J. Lama, Civil Action No. 5:14-cv-00996 (C.D. Cal.)
SEC Charges Two Clinical Drug Trial Doctors with Insider Trading
The Securities and Exchange Commission today announced charges against Dr. Franklin M. Chu and Dr. Daniel J. Lama of San Bernardino Urological Associates Medical Group ("SBUA"), San Bernardino, California, for insider trading in the securities of GTx Inc., a biopharmaceutical company based in Memphis Tennessee. The SEC's complaints against Dr. Chu and Dr. Lama were filed in U.S. District Court for the Central District of California.
The SEC alleges that Drs. Chu and Lama were medical investigators in the clinical trials of Capesaris, a drug GTx developed for the treatment of prostate cancer. As alleged in the complaints, the purpose of the clinical trials was to test the safety and efficacy of Capesaris in anticipation of GTx applying for approval of the drug by the Food and Drug Administration ("FDA"). According to the complaints, beginning in early 2011, GTx entered into a series of Clinical Trial Agreements ("CTA") with SBUA, Chu's and Lama's medical practice, pursuant to which GTx paid compensation to SBUA for each patient the practice enrolled in the study. As alleged in the complaints, the CTAs contained strict confidentiality provisions that prohibited Drs. Chu and Lama from using confidential information about the clinical trials for any purpose other than rendering services under the CTAs.
The SEC alleges that on Friday February 17, 2012, Chu and Lama each learned material, nonpublic information from GTx that the FDA was placing a hold on the Capesaris clinical trials because of concerns of an increased risk of blood clots in patients participating in the clinical trials. The SEC further alleges that immediately after learning this confidential information, and in breach of their duty to GTx, Chu and Lama each sold shares of GTx stock they held personal accounts. According to the complaints, Chu sold 16,000 shares of GTx stock, and Lama sold 5,400 shares of GTx stock, at an average sale price of $5.82 per share. As alleged in the complaints, on Tuesday February 21, 2012, after GTx publicly announced the FDA hold on the Capesaris clinical trials, the market price of GTx stock dropped over 36% and closed at $3.69 per share. The SEC alleges that as a result of trading on material, nonpublic information about the FDA hold prior to the public announcement, Chu and Lama each avoided trading losses of approximately $34,081 and $11,502, respectively. The SEC further alleges that when later contacted by SEC staff investigating this matter, Lama initially provided false information, including claiming that he had no knowledge of the FDA hold at the time of his trading. To settle the SEC's charges, Dr. Chu and Dr. Lama have each consented to the entry of a final judgment, which are subject to court approval. Dr. Chu has consented to a final judgment that permanently enjoins him from future violations of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933 ("Securities Act"), and orders him to pay disgorgement of $34,081, plus prejudgment interest of $2,014, and a one-time civil penalty of $34,081. Dr. Lama has consented to a final judgment that permanently enjoins him from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 17(a) of the Securities Act, and orders him to pay disgorgement of $11,502, plus prejudgment interest of $680, and a three-time civil penalty of $34,506.
See also Complaints: