Guilty pleas for insider trading at local bio-tech firm - CBS News 8 - San Diego, CA News Station - KFMB Channel 8

Guilty pleas for insider trading at local bio-tech firm

SAN DIEGO (CNS/News 8) - An Ohio man and his nephew, who engaged in insider trading activity in stock options of the San Diego-based biotech company Sequenom, pleaded guilty in federal court to conspiracy to commit securities fraud.

David V. Myers, of Cleveland, and his nephew, Brett A. Cohen, of Baltimore, Md., will be sentenced Feb. 18 by U.S. District Judge Barry Ted Moskowitz in San Diego.

According to court documents and admissions, Cohen received nonpublic information from a college friend concerning two biotech companies and forwarded the tips to Myers for the purpose of purchasing securities in those companies.

Using the inside information from Cohen, Myers bought stock and stock options that he later sold for a gross profit of more than $600,000, prosecutors said.

"They certainly knew what they were doing," SDSU finance professor Dr. Dan Seiver told News 8. "The plan was to make a lot of money in what is illegal."

According to the U.S. Attorney's Office, Cohen received the first tip on or about October 2008, which he knew came from college friend's brother at a biotech firm in San Diego.

The college friend communicated with Cohen about the stock tip by telephone and e-mail and even used an e-mail with a coded reference to the insider trading activity depicted in the motion picture "Wall Street," prosecutors said.

Based on the stock tip, Myers purchase about $20,000 worth of stock in the biotech firm that two months later, in January 2009, became the subject of an acquisition offer from Sequenom.

Myers later had Cohen deliver about $4,000 in cash to his college friend in exchange for the inside information, prosecutors said.

On April 29, 2009, with about 30 minutes left in the trading day, Cohen received an urgent phone call from his college buddy, who told Cohen that his brother in San Diego had another stock tip, this time about Sequenom, according to court documents.

Knowing that he had received nonpublic information about Sequenom, Cohen immediately called Myers and related the information, prosecutors said.

With minutes and just before the close of trading, Myers used the inside information to purchase about $40,000 worth of "put options" that would increase in value if Sequenom's share price declined.

After the close of trading, Sequenom announced a delay in its testing and launching of a novel prenatal diagnostic test that the company had previously touted to investors and analysts.

Sequenom relayed that "employee mishandling of R&D test data and results" rendered the previously released results unreliable and announced the company was launching an internal investigation.

Investors and analysts reacted negatively to the information, and by the close of trading on April 30, 2009, Sequenom's stock price had declined more than 70 percent from the previous day's close and trading volume increased more than 600 percent, authorities said.

Myers sold the Sequenom stock options on April 30, realizing $612,000 in proceeds, according to prosecutors.

They said Myers later delivered about $10,000 in cash to Cohen's college friend in exchange for the inside information.

Cohen and Myers are scheduled to be sentenced on February 18.

"They may do some jail time, and they're going to have to forfeit all of their profits plus more," Dr. Seiver said. "Often they have to pay back triple what they made."

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