A biotech executive committed insider trading when he bet on a competitor’s stock, believing the shares would rise when news about his own company hit the market, a jury found Friday.
The civil-fraud verdict against Matthew Panuwat, former head of business development for pharmaceutical company Medivation, marks a significant expansion of insider-trading law. The law has mostly been used to punish people who misuse nonpublic information by buying or selling their company’s stock before a big share-price move—or tipping others to do so.
A federal jury in San Francisco ruled against Panuwat after an eight-day trial. The Securities and Exchange Commission, which brought the case, maintained it was an uncontroversial application of insider-trading law.
“This was insider trading, pure and simple,” SEC Enforcement Director Gurbir Grewal said, adding that Panuwat knew Pfizer was gearing to buy his company.
“Rather than buying the securities of Medivation, however, Panuwat used his employer’s confidential information to acquire a large stake in call options of another comparable public company, Incyte Corporation, whose share price increased materially on the important news.” Call options give their buyer the right to acquire shares at a specific price by a certain date.
Congress has never defined what insider trading means, leaving regulators and courts across the country to decide what qualifies, a volatile process that sometimes leads appellate courts to rein in what they see as excesses.
Panuwat’s lawyers didn’t immediately respond to a request for comment.
Defense attorneys dubbed Panuwat’s actions “shadow trading,” because he made a bet on a correlated stock and not his own.
The SEC said two facts about Panuwat’s 2016 trading showed it was illegal. First, his employer had a policy that forbade trading other companies’ shares when employees had material nonpublic information about Medivation.
Second, Panuwat traded on his work computer just seven minutes after he allegedly learned that Pfizer was ready to buy his company.
Pfizer acquired Medivation, an oncology-focused drugmaker, in 2016 for $14 billion.
Panuwat’s purchase of Incyte options netted him $120,000, according to the SEC. He sold some of the contracts just days after buying them, court records show. He sold others weeks later and lost money on those but still earned a profit overall.
Incyte’s stock was strongly correlated with Medivation’s during the year before Panuwat’s trading, according to Daniel Taylor, a professor at the University of Pennsylvania who specializes in insider-trading research. Incyte’s stock increased 8% on the day in August 2016 that Pfizer announced it would acquire Medivation, he said.
Panuwat, a former Merrill Lynch investment banker, testified in his own trial. He tried unsuccessfully two years ago to get the novel case against him tossed. Among his objections: Pfizer’s interest in Medivation wasn’t a corporate secret because news about the possibility of a deal had leaked months earlier. The French drugmaker Sanofi had also tried to buy Medivation.
He also said he was distracted by life events and didn’t remember getting an email from the CEO that talked about Pfizer’s interest.
Trading biotechnology stocks—although not options—was also common for him. He had followed Incyte, which sold a drug for a rare blood cancer, for a long time, he told the SEC in testimony in 2020, according to court records.
The SEC is seeking a fine that could equal three times Panuwat’s $120,000 trading gain. The commission also wants to bar him from serving as an officer or director of a public company in the future.
Write to Dave Michaels at dave.michaels@wsj.com
