A trio of insider traders banked about $530,000 on tips from within Ardea Biosciences, according to the SEC, buying shares ahead of major news right up until AstraZeneca ($AZN) bought the company for $1.3 billion.
Prosecutors say the scheme began in 2009 when Michael Fefferman, then Ardea's IT director, got word the company was about to announce a collaboration deal with Bayer worth up to $407 million. Fefferman tipped off his brother-in-law, a stockbroker named Chad Wiegand, who then informed fellow broker Akis Eracleous, according to the SEC.
The two brokers bought up shares of Ardea and, when the announcement went out weeks later, the biotech's shares jumped 12%, allowing each to make a tidy profit, according to court documents. The three ran the same game around positive Phase II data on the gout treatment RDEA594 later that year, the SEC says.
But their biggest score came in 2011, as Ardea began to privately consider potential buyout offers. The company was holding talks with multiple suitors, and as its discussions with AstraZeneca got more serious, the U.K. drugmaker came down to San Diego to do its due diligence, which included an evaluation of Ardea's IT infrastructure. That gave Fefferman all the info he needed, and with the insider tip, Wiegand and Eracleous were able to bank about $280,000 after AstraZeneca and Ardea later agreed on a deal, according to prosecutors.
All three have agreed to settlements with the SEC, and their paybacks, prejudgment interest and penalties have yet to be decided, the feds said. Wiegand and Eracleous have also accepted lifetime bans from the securities industry.
The latest charges come just a week after federal prosecutors rounded up four men they say made more than $1.2 million on nonpublic information from a Sangamo Biosciences ($SGMO) corporate officer, and each case follows a well-worn path in an industry whose volatility makes it particularly vulnerable to insider trading.
Earlier this year, a former Merck ($MRK) employee pleaded guilty to sharing proprietary information about the company's M&A targets--including Ardea--with a friend who then bought and sold shares for a profit. The same idea worked for former Bristol-Myers Squibb ($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. And, in the industry's biggest insider scandal, an SAC Capital Advisers trader was convicted last year 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 his firm.
- read the complaint (PDF)