Five Settle Insider Trading Charges with SEC

The SEC filed a settled insider trading case which names as defendants two attorneys, an accountant and two other individuals. The action is based on information misappropriated from a corporate director by his personal professional advisers. SEC v. Spallina, Civil Action No. 15-cv-7118 (D.N.J. Filed September 28, 2015).

The case centers on the acquisition of Pharmasset Inc. by Gilead Sciences Inc. Pharmasset is a clinical stage pharmaceutical company based in Princeton, New Jersey. Named as defendants are Robert Spallina, a partner in the law firm of Spallina and Tescher, P.A.; Thomas Palermo, a registered representative in a brokerage firm; Brian Markowitz, a securities trader who is the neighbor of Mr. Spallina and also one of his clients; Steven Rosen, a CPA; and Donald Teascher, also a partner in Spallina and Trescher.

In early September 2011 Gilead made an initial offer to acquire Pharmasset. Subsequently, Pharmasset told Gilead that it would conduct a confidential auction. While other firms initially expressed in interest in acquiring the firm, eventually only Gilead remained. Pharmasset agreed to be acquired if the share price increased to $137 per share. The firms agreed. On November 21, 2011 a joint press release announcing the tender offer was issued.

In early November Pharmasset Board Member met with his personal legal, tax and estate planning team in his office. Those present included Messrs. Spallina, Tescher, Rosen, a financial adviser and another accountant. During the one hour meeting the pending transaction to acquire Pharmasset was discussed since Board Member held a sizable block of stock.

Within hours of the meeting Messrs. Spallina, Tescher and Rosen purchased Pharmasset securities. Later Mr. Spallina tipped his long-time friend Thomas Palermo. The two men had socialized and vacationed together. Both belonged to the same golf club. They also regularly discussed stocks and investment ideas. Mr. Spallina is alleged to have obtained a “benefit” from revealing the confidential deal information. Mr. Palermo began purchasing Pharmasset shares after the meeting.

In a separate discussion Mr. Spallina tipped Brian Markowitz. Both men were close friends, neighbors and belonged to the same golf club. Mr. Markowitz was also a client. The two men discussed stocks and investing on a regular basis. Mr. Spallina is alleged to have obtained a “benefit” from revealing the inside information to his friend. Following the conversation Mr. Markowitz purchased Pharmasset shares.

The joint Gilead-Pharmasset press release was issued before the market open on November 21, 2011. The deal price represented a premium of 89% over the close on the prior trading day. Following the deal announcement the defendants sold their shares. Collectively the five men had profits of $234,186. The complaint alleges violations of Exchange Act Sections 10(b) and 14(e).

To resolve the charges each defendant agreed to pay disgorgement, prejudgment interest and a penalty. In each instance the penalty equals the disgorgement. Mr. Spallina will pay $39,156; Mr. Tescher $9,937; Mr. Rosen $27,634; Mr. Palermo $124,529; and Mr. Markowitz $32,9321. See Lit. Rel. No. 23368 (Sept. 28, 2015).

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