SEC, USAO File Parallel Insider Trading Charges
The SEC brought an insider trading case against a senior corporate official and a chain of tippes that starts with his brother-in-law broker who then tipped his friend, another broker. Others, not named as defendants, were also tipped. SEC v. Fefferman, Civil Action No. 15 CV 1276 (S.D. Cal. Filed June 9, 2015).
The action centers on trading while in possession of inside information in the shares of Ardea Biosciences, Inc., a California based biotechnology company over a three year period beginning in April 2009. The defendants are: Senior Director of Information Technology at Ardea, Michael Fefferman; his brother-in-law, broker Chad Wiegand; Mr. Wiegand’s friend and co-worker, broker Akis Eracleous. Other tippees not named is defendants are a Business Partner of Mr. Eracleous and Customer A, a brokerage customer of Mr. Eracleous who was also friends with Business Partner and Relief Defendant Eracles Panayioutou, a brokerage client and cousin of Mr. Eracleous.
Mr. Fefferman is alleged to have tipped Mr. Wiegand who in turn tipped Mr. Eracleous who tipped the others on four occasions:
Bayer announcement: In March 2009 Mr. Fefferman learned through his position at Ardea that the firm would announce a significant agreement with Bayer HealthCare, LLC. Prior to the announcement of the agreement on April 29, 2009 Mr. Fefferman tipped Mr. Wiegand who in turn tipped Mr. Eracleous then shared the information with Mr. Panayiouto and Business Partner. Mr. Wiegand purchased 7,650 shares of Ardea stock in 9 accounts belonging to his clients; Mr. Eracleous bought 3,001 shares for his account and 5,000 shares for Panayiouto’s brokerage account; Business Partner purchased 1,500 shares for his account and another 1,085 shares in his wife’s account. Following the deal announcement the shares were sold: Mr. Eracleous had profits of $13,504; Business Partner — $5,693; Mr. Eracleous — $5,184; and Mr. Wiegand — $19,132 in the client accounts.
RDEA594 announcement: On December 1, 2009 Ardea announced positive news regarding an initial test for this drug. Prior to the announcement Mr. Fefferman learned about it and tipped Mr. Wiegard who purchased 1,000 shares for his clients; he tipped Mr. Eracleous who caused Panayiouto’s account to acquire 5,000 shares. Following the announcement of the news the shares were sold. Mr. Wiegard had profits of $820; Panayiouto’s account — $4,165.
Phase two announcement: On March 31, 2010 Ardea announced positive news regarding the phase two trials for RDEA594. Prior to that announcement Mr. Fefferman learned about the announcement and tipped Mr. Wiegand who in turn tipped Mr. Eracleous who caused Panayioutou’s account to acquire 5,000 shares. Following the announcement of the news the account had profits of $26,592.
Merger announcement: On April 23, 2012 Ardea and AstraZeneca announced a merger. Prior to the announcement Mr. Fefferman learned about the deal through his position. He informed Mr. Wiegand in a series of discussions. Mr. Wiegand acquired 19,600 shares of stock. At one point Mr. Fefferman told his brother-in-law that he hoped he purchased Ardea stock. After the deal announcement Mr. Wiegand had profits of $215,297. Mr. Wiegand tipped Mr. Eracleaous who tipped his cousin. Mr. Wiegand also tipped Business Partner who purchased 200 call options in the account of Panayioutou. Following the deal announcement the account had profits of $167,037. Mr. Panayioutou later gave Mr. Eracleous $10,000 in cash which he shared with Business Partner. In addition, Mr. Eracleous and Business Partner tipped Customer A who agreed to purchase 100 options in his account and divide the profits among the three. The options yielded illegal trading profits of $83,493.
The complaint alleges violations of Exchange Act Section 10(b). Each of the three named defendants agreed to settle the action subject to Court approval. Disgorgement, prejudgment interest and penalties will be determined at a later date. Messrs. Wiegand and Eracieous also agreed to be barred from the securities industry. A parallel criminal action was brought by the U.S. Attorney’s Office for the Southern District of California against Messrs. Wiegand and Eracious.