A Medical Device Daily
The Securities and Exchange Commission reported filing a complaint in U.S. District Court for the Southern District of Florida that charges Zachariah Zachariah, MD, and his brother, Mammen Zachariah, MD, with illegal trading in the shares of two unrelated companies.
The SEC alleges that Zachariah, a board member at Ivax (Miami), began illegally trading in Ivax securities only minutes after he learned that Ivax might be acquired. Zachariah also tipped his brother, who then purchased shares in the company.
The complaint further alleges that the brothers and Zachariah's friend, Dr. Sheldon Nassberg, also engaged in illegal insider trading in the stock of an unrelated company, Correctional Services Corp. (Sarasota, Florida), around the same time as the illegal Ivax trading.
The SEC's complaint alleges that Zachariah breached his fiduciary duty to Ivax and its shareholders only a few months after being appointed to serve as a director. Ivax's then-chairman and CEO called Zachariah and other Ivax directors on July 6, 2005, after agreeing with the then-CEO of Teva Pharmaceuticals (Tikva, Israel) on preliminary terms for Teva to acquire Ivax.
Within minutes of that call, even though Ivax was in a blackout period during which the company forbade officers and directors from trading in Ivax stock, Zachariah placed the first of four separate Ivax stock purchase orders in his online brokerage account. He purchased 35,000 shares of Ivax stock at a total cost of roughly $730,000.
The SEC further alleges that Zachariah later unlawfully tipped his brother, who purchased 2,000 shares of Ivax stock at a total cost of about $46,000 on the last trading day before Ivax disclosed on July 25, 2005, that it would be acquired by Teva.
According to the SEC's complaint, Zachariah's Ivax stock purchases were not the first time that he engaged in illegal trading while in possession of non-public information. He also misappropriated material, non-public information about Correctional Services, which operated correctional and detention facilities.
The SEC's complaint alleges that from May through July 2005, Zachariah bought over $200,000 worth of Correctional shares, and his brother and Nassberg each made multiple purchases of Correctional stock in the week leading up to July 14, 2005, when the GEO Group (Boca Raton, Florida) said that it would acquire Correctional.
Zachariah, a GEO consultant, obtained material, non-public information about a GEO-Correctional deal either from his consulting relationship or from one or more of the GEO insiders with whom he had a familial or other close, personal relationship.
Zachariah supplied the inside information to his brother and Nassberg, who purchased about $162,000 and $32,000 worth of Correctional stock, respectively.