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SEC sues investors for insider trading in acquisition of biosciences corporation

By Matt Glenn

[JURIST] The Securities and Exchange Commission (SEC) [official website] has filed an insider trading complaint [SEC release] against unknown investors in Martek Biosciences Corp. [corporate website], claiming that the investors purchased an unusually large number of call options in Martek in the two weeks preceding the December 21 announcement [DSM release] that DSM [corporate website] planned to purchase Martek. The SEC's complaint, filed last week in the US District Court for the Southern District of New York [official website], alleges that the investors bought 2,615 Martek call options [Baltimore Sun report] between December 10 and 15 and sold the options on December 21, the day on which the previously non-disclosed deal was announced. DSM paid a 35 percent premium over Martek's December 20 closing price in the deal, allowing the investors to make $1.2 million according to the SEC. To prevail on the insider trading [SEC backgrounder] claims, the SEC must show that the defendants purchased the call options on the basis of material nonpublic information. The court agreed to freeze assets from the sale [AP report] on December 23 and scheduled a hearing for January 6.

Recent years have seen an increase in insider trading cases. Last week it was announced that Karl Motey, a cooperating witness in a large insider trading probe, had pleaded guilty [Bloomberg report] earlier in the month to conspiracy and securities fraud. Earlier this month authorities arrested executives from Dell, Advanced Micro Devices (AMD), Flextronics and Taiwan Semiconductor Manufacturing [corporate websites] on insider trading charges [PC Mag report] in part of the same probe that snared Motey. The probe involves expert networks [Reuters report] that facilitate conversations between insiders and investors and whether or not these conversations led to the disclosure of confidential information. In September, a judge sentenced former IBM [corporate website] senior vice president Robert Moffat to six months in prison [JURIST report] and ordered him to pay a $50,000 fine for his role in the largest insider trading trading case in US history. Moffat's conviction was part of the government's investigation into Galleon Group hedge fund founder Raj Rajaratnam [JURIST news archive], who pleaded not guilty [JURIST report] to insider trading charges last December. Prosecutors claim that Rajaratnam and others at Galleon Group solicited nonpublic information from insiders at other companies. Former Qwest CEO Joseph Nacchio began serving a 6-year sentence [JURIST report] for insider trading in April 2009.

Full post as published by JURIST - The Paper Chase on December 28, 2010 (boomark / email).