Physicians are a key client group for many advisors, but one Connecticut doctor, says the Securities and Exchange Commission, decided to illegally conduct his own equity and options trading on a biotechnology pharmaceutical company’s stock.
The SEC on Thursday charged Dr. Edward Kosinski, a cardiologist from Weston, Connecticut, with trading the stock of Regado Biosciences in advance of two negative announcements about a heart drug, REG-1, that it was developing and for which Kosinski was the principal investigator in the final clinical trials.
Separately, the U.S. Attorney’s Office for the District of Connecticut announced criminal charges against Kosinski.
The story begins in 2013, when Kosinski bought shares of Regado Biosciences (then trading under the ticker RGDO; following a merger last year, Regado changed its name to Tobira Therapeutics Inc., ticker TBRA).
Kosinski bought the shares despite having signed a confidential disclosure agreement as a principal investigator for the drug trial under which, the SEC claims, he agreed to “hold in confidence” and “not use, disclose or exploit . . . proprietary Information for [his] own benefit or the benefit of any other person or entity.”
The SEC complaint charges that when Kosinski received advance notice from the manager of the Regado trial on Sunday, June 29, 2014, that patient enrollment was being suspended because of severe allergic reactions suffered by some trial participants, he proceeded to sell “all 40,000 shares of his Regado stock” on the next day—Monday, June 30—to “avoid approximately $160,000 in losses when the news became public and the stock price dropped.”
After the market close on July 2, 2014, Regado announced the trial suspension to review the data on the allergic reactions, and the SEC reports that on July 3, “Regado’s price fell to $2.81 per share from its previous close of $6.76 per share, a drop of approximately 58%.”
That’s not all. Joseph Sansone, Co-chief of the SEC Enforcement Division’s Market Abuse Unit, said in a statement that “not content with avoiding heavy losses, Kosinski allegedly further enriched himself by placing options trades to profit when the company’s stock price dropped again on more bad news.”
Specifically, the SEC complaint says that on July 29, 2014, Kosinski received more “material nonpublic information” when the same drug trial manager emailed him with the news that an allergic reaction suffered by several trial participants had resulted in the death of one of those subjects. The SEC alleges that on the next day, Kosinki bought puts on Regado’s stock — options that he sold, making $3,291, once Regado announced it was terminating the drug trial due to the allergic reactions.
The SEC is seeking a permanent injunction against Kosinski, enjoining him from “engaging in the transactions, acts, practices and courses of business alleged in this complaint; disgorgement of ill-gotten gains, including losses avoided,” from his insider trading; prejudgment interest; and a civil penalty.