There are very few events in the world that are truly make-or-break. One example is winning or losing a limited license or government contract in a highly lucrative industry. Another example is the job interview to get your dream job. But one of the prime examples of a make-or-break situation is the outcome of a clinical trial for a life sciences company. If the outcome is positive, the company could grow and potentially see exponential growth in stock prices. If the outcome is negative, the company could fail, and the stock price could plummet. How does one with knowledge of the outcome refrain from acting on it? Under the securities laws, insiders and people learning information from insiders are prohibited from trading securities while that information is not public. But for some, the temptation to prevent a massive loss can be too much to resist.
On June 7, the Securities and Exchange Commission announced that it had charged two individuals with insider trading based on non-public information concerning the outcome of a clinical trial. One of the individuals was overseeing a clinical drug trial for the drug company formerly known as Neuralstem Inc. and learned that the results of the trial were not favorable. The SEC alleges that the insider informed an acquaintance of the results. Further, the acquaintance is alleged to have tipped off his uncle. Both men sold their stock that day. The next day, after the negative results of the trial were announced, Neuralstem’s stock dropped by approximately 50%. That acquaintance allegedly sold his shares ahead of the announcement, avoiding a loss of $103,875, while his uncle avoided a loss of $14,434. The insider and her acquaintance were charged with insider trading and agreed to a consent judgment requiring the acquaintance to pay $222,184 and the insider to pay $103,875.
The attorneys at Chilivis Grubman represent clients of all types and sizes in connection with SEC investigations and related securities litigation. If you need assistance with such a matter, please contact us today.