July 10, 2018/US SEC
On July 10, 2018, the Securities and Exchange Commission charged a former research and development scientist at a California biotech company with insider trading in advance of three positive company announcements.
According to the SEC’s complaint, former company scientist Gene Shen had access to material nonpublic information concerning Pacific Biosciences of California, Inc.’s progress towards meeting product development milestones related to a new genetic sequencing platform. Achievement of the milestones entitled the company to significant payments under a product development agreement. Shen allegedly used this confidential information to illegally profit by purchasing shares in advance of three announcements concerning the achievement of those milestones. The SEC alleges that Shen’s purchases took place during company blackout periods and in brokerage accounts that were not at the company’s designated brokerage firm – both of which were expressly prohibited by the company’s insider trading policy. The SEC’s complaint also alleges that Shen shared material nonpublic information before the third announcement with a relative, with the intention that the relative trade and benefit from the trading. The relative purchased company shares one day before the announcement.
The SEC’s complaint, which was filed in the Northern District of California, charges Shen with violating Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, and seeks a permanent injunction along with the return of allegedly ill-gotten gains plus interest and a penalty. Shen agreed to a settlement that is subject to court approval. Without admitting or denying the allegations, Shen agreed to pay a total of $88,192, consisting of disgorgement of $40,622 plus prejudgment interest of $4,228, and a penalty of $43,342. Shen also agreed to be enjoined from future securities law violations.
The SEC’s investigation was conducted by Ian Dattner with the assistance of the Office of Market Intelligence, under the supervision of Lisa Deitch and Antonia Chion. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.