Back in 2013, as Sangamo Biosciences ($SGMO) negotiated what would become a sizable partnership deal, one of the company's officers leaked the news to a longtime friend, according to the SEC, setting in motion an insider trading scheme authorities say netted more than $1.2 million.
The SEC is charging four men with multiple counts of insider trading, alleging they profited off of shorting at least 15 stocks on ill-gotten tips in addition to loading up on Sangamo shares before the announcement of a deal with Biogen ($BIIB) worth up to $320 million.
Here's how prosecutors say the biotech deal went down: A Sangamo vice president, privy to talks between his company and Biogen, told an associate of the defendants that a deal was likely imminent. That associate, also unnamed in the SEC complaint, passed the information along to Steven Fishoff, his friends Ronald Chernin and Paul Petrello, and his brother-in-law Steven Costantin, authorities say.
The four proceeded to buy up Sangamo shares and, when the biotech''s value soared by nearly 40% on the deal announcement, they unloaded their stake and banked more than $1.2 million in the process, according to the SEC. Cedar Lane Enterprises, an equity fund also charged in the complaint, then wired $222,000 back to the associate as payment for the information, prosecutors say.
The complaint doesn't name the Sangamo officer who proffered the tip, but it does note that the person in question was named vice president of clinical research in January 2010. Sangamo announced the January appointment of Winson W. Tang to that position in a Feb. 3, 2010 news release, and a LinkedIn page bearing Tang's name says he still holds the title. In response to an email query on the issue, a Sangamo spokesperson said only that the company is aware of the complaint and is reviewing its contents.
The framework of the alleged scheme follows a well-worn path in an industry whose volatility makes it particularly vulnerable to insider trading.
Earlier this year, a former Merck ($MRK) employee pleaded guilty to sharing proprietary information about the company's M&A targets with a friend. His compatriot would buy shares in the company and, when news of Merck's interest sent their value upward, sell them for a profit. The same idea worked for former Bristol-Myers Squibb ($BMY) executive Robert Ramnarine, who is serving a year in federal prison for using insider information to make investments in Amylin Pharmaceuticals and ZymoGenetics, companies his firm later stepped in to acquire at a premium.
The industry's biggest insider scandal, in which an SAC Capital Advisors trader cozied up to a respected physician to get an early look at data on an Alzheimer's treatment, has cast an enduring shadow over the industry and its relationship with Wall Street. The trader, Mathew Martoma, was convicted of using proprietary information on Elan ($ELN) and Wyeth's then-promising Alzheimer's hopeful bapineuzumab to clear $275 million in profits and averted losses for SAC.
Beyond the Sangamo trades, the four latest defendants are accused of banking more than $3.2 million by posing as legitimate portfolio managers and getting investment bankers to clue them in on companies' future public offerings. With that information, the group shorted stocks before the offerings could be announced, according to the SEC, covering their positions and reaping a profit.
- read the complaint (PDF)