Pandemic-era insider trading scheme netted ex-Phlow exec and his cousin $1.5M, SEC says

The U.S. Department of Justice and the Securities and Exchange Commission (SEC) have charged former Phlow Vice President Andrew Stiles with insider training, alleging that he and his cousin, Gray Stiles, netted more than $1.5 million on purchases of stock made using nonpublic information about a government pandemic preparedness contract awarded to Eastman Kodak.

According to the SEC, Andrew Stiles made a profit of $553,000 by buying and selling stock in struggling camera maker Kodak. He also tipped off his cousin Gray Stiles, who made $990,000 by trading on the same stock, prosecutors allege.

The SEC also says Andrew Stiles, while working as a consultant to Novavax, used insider information to gain more than $45,000 by trading on nonpublic information about the company’s efforts to develop a COVID-19 vaccine.

Andrew Stiles was working for South Carolina-based Phlow—a medicine supply chain company—when he learned through his job of Kodak’s effort to secure a lucrative loan from the government, according (PDF) to charging documents.

Kodak filed for bankruptcy in 2012, but the company planned to repurpose facilities in Rochester, New York, and St. Paul, Minnesota, to produce active pharmaceutical ingredients used in generic medicines, which were facing shortages during the pandemic.

In May of 2020, then-President Donald Trump had ordered the U.S. International Development Finance Corporation to pursue loan agreements that would onshore the manufacturing of the generic meds, strengthening the supply chain.

The day the $765 million contract was awarded in July of 2020, Kodak’s share price skyrocketed from $2.62 to $43.45. By then, prosecutors allege, Andrew and Gray Stiles had purchased roughly 140,000 shares of stock, including 10,000 shares each the day the deal was announced.

Andrew Stiles, of Charleston, South Carolina, and Gray Stiles, of Richmond, Virginia, both age 37, were arrested on Thursday of last week. Just over a year ago, Andrew Stiles was hired as a principal at government contract specialist EverGlade Consulting. Gray Stiles did not work in the biopharma industry.  

The cousins are each charged with three counts of securities fraud, each of which carries a maximum sentence of 20 years in prison. They also are charged with one count of wire fraud and securities fraud, which carries a maximum sentence of five years in prison.

Meanwhile, the SEC seeks a permanent injunction, disgorgement and a civil penalty against the cousins, in addition to an officer and director bar against Andrew Stiles.

One of the drugs covered in the government’s preparedness plan was the antimalarial hydroxychloroquine, which Trump touted as a treatment for coronavirus and was later found in at least two major randomized studies to show no treatment benefit.