SEC Charges Uncle and Nephew in Insider Trading Scheme
FOR IMMEDIATE RELEASE
Washington, D.C., Dec. 8, 2010 — The Securities and Exchange Commission today charged a Baltimore-based business consultant and his uncle with insider trading in the stock of two biotechnology companies based on material, nonpublic information that he obtained from his fraternity brother.
The SEC alleges that Brett A. Cohen received coded e-mails referencing the movie Wall Street from his fraternity brother, who was being tipped with inside information by his own brother, a patent agent for San Diego-based Sequenom, Inc. Cohen subsequently made phone calls from an outdoor pay phone to tip his uncle David V. Myers of Cleveland, who then traded on the illegally obtained inside information and garnered more than $600,000 in illicit profits.
In a parallel criminal proceeding, the U.S. Attorney's Office for the Southern District of California today filed criminal charges against both Cohen and Myers.
"Cohen and Myers misused Sequenom's confidential information to enrich themselves at the expense of the company's shareholders," said Rosalind R. Tyson, Director of the SEC's Los Angeles Regional Office. "They used coded e-mails and other covert methods of communication in a deliberate effort to hide their illegal insider trading scheme."
According to the SEC's complaint, filed in the U.S. District Court for the Southern District of California, the patent agent learned about two corporate events involving Sequenom prior to the public release of the information:
- Sequenom's January 2009 offer to acquire Exact Sciences Corporation (EXAS).
- Sequenom's April 29, 2009 announcement that previously announced test data from its Down syndrome screening test could no longer be relied upon.
According to the SEC's complaint, the patent agent conducted intellectual property due diligence with respect to the EXAS transaction, and he was the patent agent assigned to the company's Down syndrome test.
The SEC alleges that the patent agent tipped material, non-public information about the EXAS transaction to his brother, who relayed it to his fraternity brother Cohen. For example, the patent agent's brother sent Cohen an e-mail asking, "[a]ny word related to Blu H@rsesh0e? La Jolla says the times are ripe." The movie Wall Street uses the phrase, "Blue Horseshoe loves Anacot Steel," as a code for insider trading. "La Jolla" references the fact that the patent agent lived and worked near La Jolla, Calif.
After at least a dozen phone calls among the scheme's four participants in the succeeding days, Myers made his first-ever purchase of EXAS securities, buying 15,000 shares. It was the first stock purchase in Myers's brokerage account since at least January 2007. Myers later purchased an additional 20,000 shares of EXAS stock before Sequenom publicly announced after the markets closed on Jan. 9, 2009, that it planned to acquire EXAS. EXAS stock rose 50 percent by the close of the markets on January 10 on increased trading volume of 466 percent. During the next few weeks, Myers sold nearly all of his EXAS stock for illegal profits of more than $34,000.
The SEC alleges that the patent agent also tipped his brother ahead of Sequenom's announcement that investors could no longer rely on previously disclosed data related to its Down syndrome test. The announcement caused Sequenom's stock price to drop by more than 75 percent in one day. Cohen illegally obtained and tipped inside information just prior to the company's announcement through a series of communications, including a call he placed from a pay phone near his workplace to convey information to Myers, who immediately purchased risky Sequenom put options just minutes before the markets closed on April 29, 2009. The next morning, Myers sold his entire Sequenom position for illegal profits of more than $570,000.
The SEC's complaint charges Cohen and Myers with violating the antifraud provisions of the federal securities laws. The Commission seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and financial penalties against them.
Sara Kalin, Diana Tani, and Marc Blau conducted the SEC's investigation, and John Bulgozdy will lead the SEC's litigation efforts. The Commission thanks the U.S. Attorney's Office for the Southern District of California and the Federal Bureau of Investigation for their cooperation and assistance in this matter. The SEC also acknowledges the assistance of FINRA and the Options Regulatory Surveillance Authority in this investigation.
The SEC's investigation is ongoing.
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For more information about this enforcement action, contact:
Michele Wein Layne
Associate Regional Director, SEC Los Angeles Regional Office
Marc J. Blau
Assistant Regional Director, SEC Los Angeles Regional Office
John B. Bulgozdy
Senior Trial Counsel, SEC Los Angeles Regional Office