Thursday, January 12, 2006
Thomas Bucknum, the former general counsel for Biogen Idec Inc., settled an SEC insider trading action by agreeing to disgorge $1,938,465, pay pre-judgment interest of $102,005, and a civil penalty of $969,232, a total of a little more than $3 million (complaint here). Bucknum's case is another in a series of transactions involving sales before negative news announcements, the same type of case that has been charged in a criminal prosecution against former Qwest CEO Joseph Nacchio. In this instance, the transaction involved the exercise of stock options and then sale of the stock received, as described in the SEC's Litigation Release (here):
The Commission’s complaint alleges that on the morning of February 18, 2005, Bucknum told his broker that he wanted to exercise options to purchase 89,700 shares of Biogen stock and sell those shares. The broker understood from that conversation that Bucknum wanted to sell the shares at a price of $68 per share or better. Biogen’s trading policies required that Biogen’s legal department had to approve Bucknum’s trade and Bucknum’s broker therefore proceeded to contact Biogen for the necessary clearance before making the trade. Meanwhile, at approximately noon that day, Bucknum attended a meeting at which he learned material, non-public information that was likely to have a negative impact on Biogen’s stock price. Specifically, Bucknum learned that a patient participating in a clinical trial of Biogen’s multiple sclerosis drug, Tysabri, had been diagnosed with progressive multifocal leukoencephalopathy (PML), a rare and often-fatal brain disease, and that another patient participating in a Tysabri clinical trial had an unconfirmed PML diagnosis. The Commission’s complaint alleges that, after the noon meeting, at approximately 1:30 p.m., Bucknum had a second conversation with his broker’s associate during which Bucknum instructed the associate to proceed with the sale of his 89,700 shares at the market price, which was then around $67 per share. Bucknum’s shares were sold shortly thereafter.
According to the Commission’s complaint, ten days later, prior to the opening of the market on February 28, 2005, Biogen and its development partner announced that they were suspending the marketing of Tysabri because of the confirmed and unconfirmed PML diagnoses. Biogen’s stock price had closed at $67.28 per share on the previous day. On the day of the announcement, Biogen’s stock price closed at $38.65 per share. This was a decline of $28.63 per share, or more than 42%. By selling shares of Biogen stock before the stock price fell, Bucknum reaped a substantial profit.
Bucknum resigned as Biogen's general counsel in March 2005. No criminal charges were filed, which probably indicates that the proof of intent was not strong enough. An interesting question will be whether the case will result in a bar proceeding against Bucknum. The conduct relates directly to his legal duties, and the company's policy requiring that all trades be cleared through the legal department shows that Bucknum knew of the importance of the insider trading policy and deliberately violated both the company's policy and Section 10(b). A check of the Massachusetts Board of Bar Overseers website did not show that Bucknum was licensed in Massachusetts, where Biogen's headquarters is, so he may face disciplinary proceedings in the jurisdiction in which he is licensed. (ph)