U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19332 / August 10, 2005
Securities and Exchange Commission v. David J. Shlansky, Case No. 05-CV-1582JM (RBB) (S.D. Cal. filed August 10, 2005)
SEC CHARGES VERMONT ATTORNEY WITH INSIDER TRADING
The Securities and Exchange Commission today filed settled insider trading charges against attorney David J. Shlansky for improperly buying stock in his client's company after learning the company was on the verge of being acquired. According to the Commission, Shlansky, 36, of Ferrisburg, Vermont, purchased shares of San Diego biotechnology company Applied Molecular Evolution, Inc., after the company's CFO informed him of the confidential merger negotiations. Shlansky netted illegal profits of nearly $40,000 when it was later announced that pharmaceutical giant Eli Lilly & Co. would be buying the company. Without admitting or denying the allegations, Shlansky has agreed to pay disgorgement (with interest) and penalties totaling approximately $80,000.
The Commission's complaint, filed in the Southern District of California, alleges that on November 18, 2003, Applied Molecular's then-CFO retained Shlansky to represent him in connection with a pending acquisition of the company, cautioning Shlansky that the deal was still confidential. The next day, Shlansky purchased 6,000 shares of Applied Molecular stock at around $11.55 per share. Two days later, Applied Molecular announced that it was being acquired by Eli Lilly at a price of $18 per share, causing an immediate 50% jump in the company's stock price. Shlansky realized profits of $38,681 by trading ahead of the merger announcement.
The Commission's complaint notes that Shlansky had been a long-time investor in Applied Molecular, and had purchased company stock in the days even before he learned about the acquisition. The Commission alleges, however, that once Shlansky learned significant inside information from his client, he had a duty to refrain from further trading until the news became public.
The Complaint charges Shlansky with trading on the basis of material, nonpublic information in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Shlansky, without admitting or denying the allegations in the complaint, agreed to pay disgorgement and prejudgment interest totaling $39,249 and a civil penalty of $38,681. Shlansky also agreed to a permanent injunction against future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
This is the second case filed by the Commission involving trading in Applied Molecular stock in advance of the Eli Lilly acquisition. On December 14, 2004, the Commission filed insider trading charges against two employees of the desktop publishing company involved in preparing the merger documents.
The Commission acknowledges the assistance of the National Association of Securities Dealers (NASD) in this matter.