SEC Files Another Settled Insider Trading Case
Insider trading continues to be a key priority in the new get tough enforcement era. Last week closed with the filing of an insider trading action centered on the BP oil spill in the Gulf of Mexico. This week begins with another insider trading action, this time tied to clinical tests for a possible new advanced melanoma drug.
SEC v. Itri (D.N.J. Filed April 21, 2014) is an action against three defendants: Dr. Loretta M. Itri; Dr. Neil T. Moskowitz; and Mathew Cashin. Dr. Itri was the President of Pharmaceutical Development and Chief Medical Officer of Genta, Inc. from 2003 until the firm filed for bankruptcy in 2012. Dr. Moskowitz is an emergency room physician; and Mr. Cashin was a patient of Dr. Moskowitz in the emergency room.
This case centers on the October 29, 2009 announcing by Genta regarding the Phase 3 clinical trial results for its new drug. In that announcement the firm stated that the Phase 3 trials were disappointing. The share price dropped significantly, from $0.66 to $0.20.
Prior to that time the drug had been in Phase I and II clinical trials. At the beginning of the Phase III trials the company hoped that it would shortly be able to market the drug. During the trials Dr. Itri had continuing access to information regarding the trials. On October 26 and 27, for example, she participated in meetings and conference calls about the drug. On October 28 she received the final independent verified results.
Doctors Itri and Moskowitz had known each other for about 40 years. They talked sporadically. After discussing Genta with Dr. Itri, Nr. Moskowitz purchased shares in the company. Over a period of about one month beginning in mid-September 2009 the physician acquired 142,000 shares.
Dr. Moskowitz also advised others to purchase Genta shares. For example, after treating Mr. Cashin in the emergency room in mid-August 2009 he purchased Genta shares on the next trading day. In subsequent conversations Dr. Moskowitz advised Mr. Cashin that he knew executives at the firm and that it was conducting drug tests, the results of which could be significant. Over a period of a few weeks beginning after the emergency room visit, Mr. Cashin acquired 173,830 shares of Genta for his account and those of several family members. Mr. Cashin also told three friends about the pharmaceutical company. Each purchased a small amount.
On October 28, 2009, the day before the drug trial announcement, at 10:33 there was a telephone call between Drs. Itri and Moskowitz. The call lasted 3 minutes. At 10:29 there was a second call between the two physicians. The call duration was one minute. At 10:33 Dr. Moskowitz placed a sell order for all 22,000 shares of the Genta shares in his retirement account. Thirteen minutes later sold all 120,000 shares of Genta held in his individual account.
Later the same morning Dr. Moskowitz called Mr. Cashin. Less than a minute after the call Mr. Cashin begain selling all of his Genta shares. He also instructed a family member to sell Genta shares. Overall the two sold 173,830 shares. Later that day others Mr. Cashin had recommended acquire the stock sold their shares. The Commission’s complaint alleges violations of Exchange Act Section 10(b) and Securities Act Section 17(a).
Each defendant resolved the charges, consenting to the entry of permanent injunctions precluding future violations of the Sections cited in the complaint. In addition, Dr. Itri is required to pay a civil penalty of approximately $64,000. The order also bars her from serving as an officer or director of a public company for five years. Dr. Moskowitz is required to return $64,300 of ill-gotten gains, pay prejudgment interest and a civil penalty equal to the amount of the repayment. Mr. Cashin will return $75,140 of allegedly ill-gotten gains, pay prejudgment interest on that sum and a civil penalty of $37,570. This resolution acknowledges his cooperation.