Securities and Exchange Commission
Litigation Release No. 16313 / September 29, 1999
Securities and Exchange Commission v. Dr. Alan Brody,
99 Civ. 02579 (HHK) (DDC) (September 29, 1999)
SEC Sues Psychiatrist for Insider Trading
On September 29, 1999, the Securities and Exchange Commission filed a
complaint in the United States District Court for the District of Columbia against Dr. Alan Brody, a psychiatrist licensed to practice in Maryland, New York and the District of Columbia. The Commission's complaint alleges that Dr. Brody engaged in insider trading based on information he misappropriated from a patient, an officer of Penril DataComm Networks, Inc. who knew of an upcoming business combination involving Penril and Bay Networks Incorporated.
The complaint specifically alleges that on June 11, 1996, the patient had a 45-minute doctor's appointment with Dr. Brody starting at 1:00 p.m. During that appointment, the patient, who had recently been told by Penril's executive vice president of the proposed combination so that the patient could assist in performing certain due diligence tasks, told Dr. Brody about the upcoming acquisition. The complaint alleges that the patient believed that the information he confided to Dr. Brody during his professional treatment, including information regarding the proposed business combination involving Penril and Bay, would be held in confidence and would not be used by Dr. Brody for his own personal benefit. Nevertheless, within 15 minutes after the appointment ended, Dr. Brody began to purchase Penril common stock. On that day and the next, Dr. Brody purchased a total of 15,000 shares of Penril stock through two different brokerage firms.
Several days later, on June 17, 1996, Penril and Bay publicly announced that Penril would spin off a business unit to its shareholders and sell the remainder of its business to Bay in a stock transaction valued at $120 million. The announcement caused Penril's stock price to increase from $10.00 to $13.625 per share, or 36.25 percent. Dr. Brody reaped $38,000 in profits when he sold his shares shortly after the public announcement.
Simultaneous with the filing of the Complaint, Dr. Brody consented, without admitting or denying the allegations of the Complaint, to the issuance of a final judgment permanently enjoining him from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and ordering him to pay $87,558.06, representing disgorgement of his illegal profits, prejudgment interest thereon, and a civil penalty under the Insider Trading Sanctions Act.