Tuesday, March 28, 2006

SEC Files Insider Trading Charges Against Pharmaceutical Company Executive for Selling Before Bad News

The SEC filed insider trading charges against Alexander Yaroshinsky, a vice president of Connetics Corp., for trading in the company's securities upon learning about the FDA's preliminary negative reaction to cancer studies of an acne drug being tested.  The Commission's Litigation Release (here) states:

[Yaroshinsky] learned the FDA's preliminary views with respect to the cancer tests in an April 13, 2005 call with the FDA. Shortly thereafter, Yaroshinsky positioned himself to profit from a fall in the price of Connetics' stock. In accounts he controlled, Yaroshinsky sold 15,100 previously acquired Connetics shares, and bought 2,076 put contracts which gave him the right to sell Connetics shares at a fixed price and profit when the shares fell below that price. Ultimately, on June 13, 2005, when news of the non-approval was made public, Connetics' share price fell 27% and Yaroshinsky reaped a benefit of at least $680,000.

Yaroshinsky's trading included a heavy bearish bet on the company by buying puts on Connetics.  That trade is the flip side of buying a call, which one would do in anticipation of an increase in the stock price.  That volume of put contracts, which often have lighter volume than calls, is likely what tipped off the SEC and Chicago Board of Options Exchange about questionable trading and triggered the inquiry. (ph)

http://lawprofessors.typepad.com/whitecollarcrime_blog/2006/03/sec_files_charg.html

Civil Enforcement, Insider Trading, Securities | Permalink

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