David R. Chase, P.A.
Call Us Now: 800-760-0912
David R. Chase, P.A.
Call Us Now: 800-760-0912


SEC Charges New Jersey Resident for Insider Trading in Two Pharmaceutical Companies

The Securities and Exchange Commission, SEC, recently filed a lawsuit in federal district court against David Post alleging he generated almost $700,000.00 in illegal profits from insider trading in two pharmaceutical companies that were about to be acquired.

The SEC alleged that Post received a tip of confidential details about the impending deals by his former business school classmate, Zachary Zwerko, a financial analyst who worked for a major pharmaceutical company in the role of evaluating potential acquisitions. Post and Zwerko are alleged to have used prepaid “burner” cell phones to exchange coded text messages in advance of Post’s trading, and to have used a dummy e-mail account they could both access to draft an e-mail message in code and leave it in the draft folder for the other to read and then delete.

As payback for the illegal insider tips, Post paid Zwerko $7,000.00 at a Halloween party and then paid him another $50,000.00 in a shoebox, according to the SEC.

In its press release, the SEC highlighted as red flags the facts that: (1) Post had never traded in either of the two target pharmaceutical companies, and (2) that his purchase of $227,000.00 in the first target company was “the most he had ever invested in a single company.”

The SEC’s focus on these types of red flags demonstrates its long-held view that unusual trading, be it one-time trades in a particular company for which the trader has no trading history, alone or coupled with investment amounts that grossly exceed prior trades, is evidence – albeit circumstantial — of insider trading.   Other trading “red flags” the SEC will zero in on include whether the trader used margin to purchase even more securities, whether options were utilized and, if so, how far out in time and out of the money, and generally whether the subject trading was consistent with the target’s prior securities account activity.

The opposite is also true. A trader who has purchased the subject security in the past, and who has an established pattern of engaging in speculative trading in large dollar amounts, may make it that much more difficult for the SEC to establish a circumstantial case of insider trading.

However, given the evidence the SEC claims it has in the Post case — “burner phones”, coded text messages and dummy e-mail accounts — coupled with one-time trading in the particular securities in dollar amounts that far exceed any prior investment, it is my humble opinion that defense counsel has its work cut out for it.

If are under investigation for insider trading by the SEC, call David Chase for a confidential, no-cost consultation, toll-free at: 800-760-0912, or send an e-mail to david@davidchaselaw.com.

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