The former Merck ($MRK) employee charged with profiting off of M&A secrets has pleaded guilty to biotech's latest insider trading scandal.
The ex-employee, Zachary Zwerko, copped to leaking insider info to a former business school colleague who then used the tips to inform stock purchases, Bloomberg reports. The former Merck analyst pocketed $57,000 for his trouble, and his co-conspirator made $700,000, according to Bloomberg. Zwerko has pleaded guilty to conspiracy and three counts of securities fraud, facing 5 years on the former charge and up to 20 years for each count of the latter, according to the news service.
According to prosecutors, the pair had a simple scheme: Zwerko, a financial analyst with access to proprietary information at Merck, would keep an eye out for M&A negotiations, informing his friend when a deal seemed imminent. His counterpart, a former Bank of New York Mellon employee named David Post, would then buy up shares of the target company and sell them off once the deal went through, according to the court.
Last summer, as Merck crept closer and closer to its $3.9 billion buyout of Idenix Pharmaceuticals, Zwerko picked up on the ongoing talks and informed Post, who bought into the hepatitis C biotech. In June, when Merck made official its $24.50-per-share acquisition, Post cashed out for a profit, authorities say.
The pair pulled the same move in 2012, according to prosecutors. Ardea Biosciences, maker of a promising gout therapy, was courting offers from numerous big drugmakers, including Merck. Zwerko passed that information on to his friend, and, when AstraZeneca ($AZN) later won the bidding war with a $1.3 billion cash offer, Post reaped some illicit gains, feds say.
The scheme is similar to the one pulled off by former Bristol-Myers Squibb ($BMY) executive Robert Ramnarine, who is serving a year in federal prison for tapping nonpublic information to inform bets on Amylin Pharmaceuticals and ZymoGenetics, companies his firm later stepped in to acquire at a premium.
The industry's biggest insider scandal, in which an SAC Capital Advisors trader cozied up to a respected physician to get an early look at data on an Alzheimer's treatment, has cast an enduring shadow over the industry and its relationship with Wall Street. The trader, Mathew Martoma, was convicted of using proprietary information on Elan ($ELN) and Wyeth's then-promising Alzheimer's hopeful bapineuzumab to clear $275 million in profits and avert losses for SAC.
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