A Medical Device Daily
The Securities and Exchange Commission charged the mayor of Beaufort, South Carolina, with insider trading on non-public information that he obtained while doing consulting work for a California biotechnology company.
According to the SEC, William Rauch purchased stock in Advanced Cell Technology (ACT; Alameda, California), immediately after one of its executives informed him about a breakthrough embryonic stem cell technique that the company was about to disclose publicly. Rauch was told the information was confidential, and he had previously signed an agreement with the company that barred him from using confidential company information for his own benefit. Rauch has agreed to settle the charges without admitting or denying the allegations.
The SEC's complaint, filed in federal court in San Francisco, alleges that an ACT executive told Rauch on Aug. 3, 2006, that a science journal would soon be publishing an article reporting ACT's development of a new technique for creating stem cell lines without harming embryos, which the company believed might alleviate concerns about stem cell technology.
According to the complaint, Rauch called a securities broker and opened accounts in his name and his children's names on the same day he received the confidential information. On Aug. 9 and 14, after further discussions with the ACT executive, Rauch called his broker and bought more than $11,000 of ACT stock in his children's accounts.
On Aug. 23, ACT publicly reported its embryonic stem cell development, and its stock price jumped 360% from 40 cents to $1.83 a share. The stock price declined to 96 cents a share on Aug. 25, still 140% above the price just before the announcement.
Even with the price decline, Rauch's potential profit on his stock purchases two weeks earlier, had he sold, was more than $20,000.
Without admitting or denying the SEC's allegations, Rauch has consented to an injunction from future violations of Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder and has agreed to pay $20,708 in disgorgement, $2,576 in prejudgment interest, and a $20,708 penalty.