SEC Charges Brothers with Insider Trading

SEC Charges Brothers with Insider Trading

On June 11, 2013, the Securities and Exchange Commission filed a civil injunctive action in the Northern District of Ohio against Andrew W. Jacobs ("A. Jacobs") and his brother Leslie J. Jacobs II ("L. Jacobs"). 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 ("Sanofi"), 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 ("Announcement"). Shares of Chattem closed 32.60% higher on the day of the Announcement than the prior trading day's close of $69.98 and volume increased more than 3,000% to 10.3 million shares.

The Commission alleges that A. 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 A. Jacobs had been friends since business school and who was married to his wife's sister, requested that A. Jacobs keep their discussion confidential. A. Jacobs agreed to do so. Nonetheless, according to the complaint, the next day, A. Jacobs called his brother L. Jacobs A and told him that Chattem was going to be acquired. A few days later, L. Jacobs purchased 2000 shares of Chattem at a cost of $136,579.85. After the Announcement, L. 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 is the eighth case that the Commission has brought alleging insider trading in connection with the acquisition of Chattem by Sanofi. See SEC v. Lazorchak, et al., Lit. Rel. No. 22535; SEC v. Coots, et al, Lit. Rel. No.22466; SEC v. Jackson, Lit. Rel. No. 22467; SEC v. Berry, Lit. Rel. No.22465; SEC v. Melvin, et. al, Lit. Rel. No. 22468; SEC v. Rooks, Lit. Rel. No.22469; SEC v. Condroyer, et al., Lit. Rel. No. 21347.