The Securities and Exchange Commission has filed fraud charges against George Demos, a former Vice President of Drug Safety and Pharmacovigilance at Acadia Pharmaceuticals Inc., for trading on material, non-public information in advance of Acadia’s announcement of negative FDA news regarding its supplemental new drug application. Acadia had secured prior approval of its drug to treat Parkinson’s disease psychosis, and was thereafter seeking approval of it to treat hallucinations and delusions associated with dementia-related psychosis.
The process for obtaining approval to market a drug to treat a secondary ailment involves filing a supplemental application with the Food and Drug Administration. The FDA reviews the application and then meets with the drug manufacturer to formulate acceptable wording of the label for the new treatment.
The SEC complaint alleges that one month after filing a supplemental application, Acadia publicly announced that the FDA had accepted its application for filing and would respond to the application in nine months. Acadia did not, however, publicly announce that the FDA further notified it that it planned to communicate its own proposed labeling for the new drug treatment in eight months, assuming no major deficiencies were identified during the review. The date set for the proposed labeling passed with no meeting. Demos was told Acadia management was “not quite ready yet to discuss FDA feedback.” The meeting was again rescheduled twice for a day or two each time. On the fifth day of delay, Demos concluded that the FDA had made an adverse decision about the proposed labeling.
Although Demos had not been told directly about any decision by the FDA, the SEC in its enforcement action alleges Demos knew, or was reckless in not knowing, that the information about the delays was material and non-public, and that he was prohibited from trading based upon it. On that fifth day of delay, and based on this material nonpublic information, Demos exercised nearly all his vested Acadia stock options and immediately sold his shares. Later that same day, and just a few hours after Demos sold his shares, Acadia issued an aftermarket press release announcing that the FDA had notified Acadia, on the first scheduled meeting date, that the FDA had identified deficiencies in the supplemental drug application that precluded discussion of labeling and other issues. The next day, Acadia’s shares closed about 45% lower than the prior day’s close thus allowing Demos to avoid losses of approximately $1.3 million.
The SEC complaint, filed in the U.S. District Court for the Southern District of California, alleges violations of the anti-fraud provisions of the federal securities laws, namely: Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
With neither admitting nor denying the SEC’s charges, Demos consented to entry of a judgment that: (1) permanently enjoining him from violating the charged anti-fraud provisions, (2) prohibiting him from serving as an officer or director of a public company for five years, and (3) authorizing the court to determine the amount of disgorgement and prejudgment interest he must pay, and whether a civil penalty is appropriate under the facts and, if so, the penalty amount. The settlement is subject to Court approval. In a parallel action, the U.S. Attorney’s Office for the Southern District of California filed criminal charges against Demos.
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SEC insider trading defense attorney David Chase, Esq. of the Law Firm of David R. Chase, has successfully represented individuals in SEC insider trading investigations around the country for more than twenty years after having held the position of Senior Counsel in the Enforcement Division of the SEC. If you have received a SEC Subpoena, or are currently under SEC investigation and need strategic advice from an experienced SEC defense attorney, contact David at: 800-760-0912 or e-mail him at: david@davidchaselaw.com. Visit the Firm’s website for valuable content and to review the firm’s prior successful SEC defense results at: www.securitiesfrauddefense.net.
