U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19357 / September 1, 2005
SECURITIES AND EXCHANGE COMMISSION v. RICHARD B. SELDEN , (United States District Court for the District of Massachusetts, Civil Action No.0511805 (NMG))
SEC CHARGES FORMER CEO OF MASSACHUSETTS BIOTECHNOLOGY COMPANY WITH SECURITIES FRAUD
The Commission today filed a civil fraud action against Richard B. Selden of Wellesley, Massachusetts, concerning misrepresentations in public statements and Commission filings by Transkaryotic Therapies, Inc., during Selden's tenure as CEO and a director of the company. The action, filed in federal district court in Massachusetts, charges Selden with violating or aiding and abetting violations of the antifraud and reporting provisions of the federal securities laws in connection with materially misleading statements between October 2000 and October 2002 concerning results of Transkaryotic's clinical trials and its FDA application for its flagship drug, Replagal. Transkayotic was a biotechnology company that was headquartered in Cambridge, Massachusetts, and was publicly-traded until it was acquired by another company in July 2005.
The Commission's complaint alleges that, in June 2000, after completing clinical trials, Transkaryotic filed its application for FDA approval of Replagal, a treatment for Fabry's Disease, a rare genetic disorder in which patients suffer from extreme pain. From at least October 2000 until October 2002, Selden and, under his direction, Transkaryotic, made positive statements concerning Replagal's clinical benefits, describing its pivotal clinical trial as a success, and made positive statements about Replagal's chances of being approved by the FDA. However, according to the complaint, Selden knew, but failed to disclose, material negative information about the pivotal clinical trial and the FDA application, including that: (1) the pivotal clinical trial had failed to meet the primary objective that Transkaryotic and the FDA had agreed would be necessary to demonstrate Replagal's clinical benefit for pain relief; (2) the FDA had informed Transkaryotic on several occasions beginning at least as early as January 2001 that the pivotal trial was a failed study, that the study's primary analysis had failed, and that the FDA recommended additional clinical trials; and (3) beginning in 2001, Transkaryotic had informed the FDA, based on the FDA's criticisms of its clinical pain results, that it did not intend to seek approval for Replagal based on a claim that the drug relieved the pain of Fabry's Disease. The complaint alleges that when Transkaryotic finally disclosed some negative information about the FDA application after the close of markets on October 2, 2002, the announcement caused the company's stock price to plummet over $20 per share, from a closing price of $33.25 per share on October 2 to $12.75 per share on October 3. According to the complaint, prior to the October 2002 disclosure, Transkaryotic's stock price had been kept at artificially high levels by the misleading statements and omissions about the Replagal clinical trials and FDA application, and Selden benefitted from the artificially high prices by selling 90,000 shares of Transkaryotic stock between May 2001 and February 2002. By selling this stock at the time he did, rather than after the negative information became public in October 2002, Selden avoided a loss of $1,664,000.
The Commission's complaint charges Selden with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and with aiding and abetting Transkaryotic's uncharged violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The Commission is seeking injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, civil penalties, and an order barring Selden from serving as an officer or director of a public company.