The Securities and Exchange Commission has obtained a favorable verdict from a jury in the Northern District of Ohio finding that Andrew W. Jacobs of Lancaster, Pa., and his brother Leslie J. Jacobs II of Cleveland, Ohio, committed insider trading in connection with the December 2009 tender offer for Chattem Inc., a Chattanooga.-based distributor of pharmaceutical products.
In its complaint, the SEC alleged that Andrew Jacobs provided Leslie Jacobs material non-public information about the tender offer and that Leslie Jacobs then traded on the basis of the information he received from his brother. Andrew Jacobs learned of the tender offer in a confidential conversation with his brother-in-law, who at the time was a Chattem executive. The executive, with whom Andrew Jacobs had been friends since business school, requested that Andrew Jacobs keep their discussion confidential, and he agreed to do so. Nonetheless, the next day, Andrew Jacobs called his brother Leslie Jacobs and told him that Chattem was going to be acquired. A few days later, Leslie Jacobs purchased 2,000 shares of Chattem, and he sold those shares after the public announcement of the acquisition for an illicit profit of $49,457.21.
After a six-day trial, the jury on Thursday found in favor of the SEC on the claims under Section 14(e) of the Securities Exchange Act of 1934 and Rule 14e-3 thereunder. These provisions prohibit insider trading in connection with a tender offer. The jury found in favor of the defendants on the claims under Sections 10(b) of the Exchange Act and Rule 10b-5 thereunder.
Andrew Ceresney, director of the SEC Division of Enforcement, said, "We are gratified that the jury unanimously found that both defendants committed insider trading in the context of a tender offer. The defendants were found to have violated one of the Commission's core anti-fraud provisions that is aimed at protecting the investing public by preventing those with insider knowledge from illegally profiting from their fraudulent trading."
The trial was presided over by U.S. District Judge Solomon Oliver Jr. The court will now decide what remedies are warranted based on the jury’s verdict. In its complaint, the SEC sought permanent injunctions, disgorgement with prejudgment interest, and civil monetary penalties pursuant to Section 21A of the Exchange Act. The SEC also sought an officer and director bar against A. Jacobs, who was a high-level executive of a public company at the time of the tip. The case was tried by Kristin B. Wilhelm and Joshua A. Mayes of the SEC’s Atlanta Regional Office and Stephan J. Schlegelmilch of the SEC’s headquarters in Washington, D.C.
Last June 11, the Securities and Exchange Commission filed a civil injunctive action in the Northern District of Ohio against the Jacobs brothers.
Officials said at the time, "The Commission alleges that A. Jacobs provided L. Jacobs material non-public information about a pending tender offer for Chattem, Inc. securities. L. Jacobs then traded on the basis of the information he received from his brother.
"According to the Commission's complaint, on December 21, 2009, Sanofi-Aventis, a French pharmaceutical company, announced its intent to make a tender offer for Chattem, a Tennessee-based distributor of over-the-counter pharmaceutical products, at the price of $93.50 per share. Shares of Chattem closed 32.60 percent higher on the day of the announcement than the prior trading day's close of $69.98 and volume increased more than 3,000 percent to 10.3 million shares.
"The Commission alleges that Andrew Jacobs learned of the tender offer in a confidential conversation with his brother-in-law, who was at the time a Chattem executive. The executive, with whom Andrew Jacobs had been friends since business school and who was married to his wife's sister, requested that Andrew Jacobs keep their discussion confidential. Andrew Jacobs agreed to do so. Nonetheless, according to the complaint, the next day, Andrew Jacobs called his brother Leslie Jacobs and told him that Chattem was going to be acquired. A few days later, Leslie Jacobs purchased 2,000 shares of Chattem at a cost of $136,579.85. After the announcement, Leslie Jacobs sold those shares for a profit of $49,457.21.
"The Commission's complaint, filed in the United States District Court for the Northern District of Ohio, alleges that each defendant violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder, and seeks against each defendant permanent injunctions, disgorgement with prejudgment interest and civil monetary penalties pursuant to Section 21A of the Exchange Act. The Commission also seeks an officer and director against A. Jacobs, who was a high-level executive of a public company at the time of the tip.
This was the eighth case that the Commission has brought alleging insider trading in connection with the acquisition of Chattem by Sanofi.