SEC Charges Mayor of Beaufort, S.C., With Insider Trading in Stock of Biotech Company
WASHINGTON, July 16, 2008 — The Securities and Exchange Commission today charged the mayor of Beaufort, S.C., with insider trading on non-public information that he obtained while doing consulting work for a California biotechnology company.
The SEC alleges that Mayor William J. Rauch purchased stock in Advanced Cell Technology, Inc., immediately after one of its executives informed him about a breakthrough embryonic stem cell technique that the company was about to disclose publicly. According to the SEC's complaint, Rauch was told the information was confidential, and he had previously signed an agreement with the company that barred him from using confidential company information for his own benefit. Rauch has agreed to settle the SEC's charges without admitting or denying the allegations.
"This case underscores how important it is for consultants provided with non-public information to be mindful of the duties of confidentiality owed to companies that hire them," said Marc J. Fagel, Regional Director of the SEC's San Francisco Regional Office.
The SEC's complaint, filed in federal court in San Francisco, alleges that an Advanced Cell Technology executive told Rauch on Aug. 3, 2006, that a science journal would soon be publishing an article reporting Advanced Cell's development of a new technique for creating stem cell lines without harming embryos, which the company believed might alleviate concerns about stem cell technology.
According to the SEC's complaint, Rauch called a securities broker and opened accounts in his name and his children's names on the same day he received the confidential information. On August 9 and 14, after further discussions with the Advanced Cell executive, Rauch telephoned his broker and purchased more than $11,000 of Advanced Cell stock in his children's accounts. On August 23, Advanced Cell publicly announced its embryonic stem cell development, and its stock price jumped 360 percent from $0.40 to $1.83 per share. The stock price declined to $0.96 per share on August 25, still 140 percent above the price just before the announcement. Even with the price decline, Rauch's potential profit on his stock purchases two weeks earlier, had he sold, was more than $20,000.
Without admitting or denying the SEC's allegations, Rauch has consented to an injunction barring future securities law violations and has agreed to pay $20,708 in disgorgement, $2,576 in prejudgment interest, and a $20,708 penalty.
The SEC acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) in this matter.
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Marc J. Fagel
Regional Director, SEC's San Francisco Regional Office
Cary S. Robnett
Assistant Regional Director, SEC's San Francisco Regional Office
Posted: July 2008