The U.S. Securities and Exchange Commission has charged five Florida residents, including two lawyers, in a New Jersey federal court with allegations of insider trading related to Gilead Sciences Inc.’s 2011 acquisition of Pharmasset Inc. The commission said in the complaint that the lawyers, Robert L. Spallina and Donald R. Tescher, as well as accountant Steven G. Rosen and financial adviser Thomas J. Palermo, illegally traded on confidential information in the run-up to the $11 billion acquisition, in violation of securities laws. The men, including a neighbor, Brian H. Markowitz, allegedly obtained the insider information from a mutual client who served on the board of directors at Princeton, New Jersey-based Pharmasset.
The law firm, Spallina, Tescher, Rosen, Palermo and Markowitz, has agreed to pay approximately $489,000 to settle the charges. Those settlements are subject to court approval. Joseph G. Sansone, co-chief of the SEC’s Market Abuse Unit, said in a statement:
Lawyers and accountants occupy special positions of trust and confidence and are required to protect the information entrusted to them by their clients. It is illegal for them to steal their clients’ confidential information to trade securities for their own profit or to tip others.
On Nov. 21, 2011, the companies announced that Gilead was purchasing Pharmasset for $137 per share in cash. Following the public notification, Pharmasset stock rose by 84 percent, and the five defendants liquidated their holdings to gain $234,000 of illegal profits, according to the commission. The law firm, Spallina, Tescher and Rosen, met with the Pharmasset board member on Nov. 8, 2011 to discuss year-end personal tax and estate planning, according to the complaint. At that meeting, the men discussed Pharmasset’s plans to sell the company at “a significant premium.
The lawyers and accountant were said to have broken their fiduciary duties of trust to their client by using the information from the meeting to purchase Pharmasset stock. Spallina allegedly then told Palermo and Markowitz about the negotiations, and both purchased securities based on the tip. As part of an agreement, Spallina will return nearly $40,000 of his gains, plus another $40,000 in prejudgment interest and a civil penalty. Tescher will return nearly $10,000, plus another $10,000 in penalties. Rosen will pay a collective $55,000, and Markowitz will pay $66,000. Palermo was hit the hardest, having to pay $125,000 in disgorgement, $125,000 in penalty and $14,000 in prejudgment interest. The five men are not the first to be touched by insider trading charges related to the deal.
In 2013, Kevin Dowd, 38, of Boca Raton, Florida, pled guilty to conspiracy to commit securities fraud in connection to insider information he shared with two co-conspirators. Dowd admitted to providing two people with information regarding Gilead’s plans to purchase Pharmasset before the companies went public with the terms of the deal. He faces up to five years in prison and a maximum fine of $250,000.
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