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From Securities Regulation Daily, August 31, 2017

Former pharmaceutical company accountant, friends face civil and criminal insider trading charges

By Amanda Maine, J.D.

The SEC and the DOJ brought insider trading charges against four men for trading ahead of two market-moving announcements by a pharmaceutical company. A former accountant at the company allegedly tipped two friends about positive clinical drug trial results and the impending acquisition of the company, and one of the men relayed the same information to his father. Three of the defendants pleaded guilty to criminal charges (SEC v. Kita, August 31, 2017).

Trial results. Evan R. Kita, an accountant at Celator Pharmaceuticals, Inc., learned in March 2016 from the company’s CFO that the results of a Phase 3 clinical trial for the company’s leukemia drug Vyxeos were positive. Kita allegedly told his friends Daniel Perez and Richard Yu about the positive news. Richard Yu also passed the information along to his father, Chiang Yu, and the three men purchased Celator stock in the following days. When the positive trial results were announced on March 14, the price jumped, generating illicit profits amounting to a return of nearly 500 percent above the purchase price. According to the SEC’s complaint, the men communicated using an encrypted smartphone application.

Acquisition of Celator by Jazz. Kita left Celator in early April 2016, but stayed in close contact with two Celator employees. In May 2016, Kita learned from his Celator friends that Jazz Pharmaceuticals was planning on acquiring Celator. Kita allegedly tipped Perez and Richard Yu again using the encrypted smartphone application about the bidding deadline and that they should "get your ducks in a row." The men again acted on this inside information, purchasing several thousand shares of Celator stock. When the acquisition was announced, the company’s stock price rose sharply, generating profits totaling over $100,000 between the three men. The tippees also allegedly paid cash to Kita in return for his tips.

Charges. The SEC charged the four men with fraud and is seeking disgorgement, interest, penalties, and injunctions against the defendants. In a parallel criminal case, the U.S. Attorney’s Office for the District of New Jersey announced that Kita and the Yus have pleaded guilty to securities fraud. Perez was arrested and charged with one count of conspiracy to commit securities fraud.

Attorneys: Kelly L. Gibson for the SEC.

MainStory: TopStory FraudManipulation NewJerseyNews

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