The SEC charged a former global consulting firm executive and his friend who once worked on Wall Street with insider trading on confidential information about impending takeovers of two biotechnology companies.  In a parallel action, the U.S. Attorney's Office for the Southern District of New York today announced the unsealing of criminal charges against the two individuals. SEC Allegations of Wrongdoings. Scott Allen learned confidential information in advance of the acquisitions of Millennium Pharmaceuticals Inc. and Sepracor Inc. through his work at a global consulting firm that was advising the acquiring Japanese companies as they made cash tender offers.  Allen then tipped his longtime friend John Michael Bennett, an independent filmmaker who had previously worked at a Wall Street investment bank, as each acquisition took shape. On the basis of the nonpublic information, Bennett purchased thousands of dollars in call options in the companies and also tipped his business partner at the independent film company they co-own.  Bennett and his tippee generated over $2.6mn in illicit profits.  Allen, in turn, received cash from Bennett in exchange for the tips.

The scheme allegedly began in February 2008 as Allen first learned about the Millennium transaction through his work at the consulting firm, where he's no longer employed.  Allen communicated with Bennett about the Millennium and Sepracor transactions through either phone calls or in-person meetings, some of which are tracked through their simultaneous use of Metrocards at subway stations in New York City and ATM withdrawals of cash made by Bennett prior to those meetings. Allen first obtained nonpublic information about the Millennium transaction in mid-February 2008 when his firm began advising Japan-based Takeda Pharmaceutical Company during its negotiations with Millennium. Allen tipped Bennett with inside information concerning Takeda's impending cash tender offer to acquire Millennium's shares. For instance, after Allen received an evening e-mail on February 27 from a Takeda representative stating that the contemplated offer was for "23, potentially 24 per share," he called Bennett just minutes later and then twice again that evening. Bennett then called his business partner. More calls took place the following day, and then on February 29 and continuing up until the week prior to the April 10 public announcement of the acquisition, Bennett and his business partner began amassing Millennium call options. The price of Millennium shares increased more than 48 percent after the public announcement, and beginning that afternoon Bennett and his business partner sold their entire positions of Millennium call options for ill-gotten gains of more than $602,000 and $1.12 million respectively. Allen later was participating in his employer's due diligence work in May 2009 for Japanese firm Dainippon Sumitomo Pharma Co. Ltd. (DSP) in connection with its impending acquisition of Sepracor. Allen again tipped Bennett with inside information about the upcoming transaction. In the months leading up to the September 3 public announcement that DSP had agreed to acquire Sepracor through a cash tender offer, Bennett purchased thousands of dollars worth of call options in Sepracor and again tipped his business partner who did the same. Following the public announcement, Sepracor's stock price rose more than 26 percent. Both Bennett and his business partner then liquidated their Sepracor holdings for ill-gotten profits of more than $516,000 and $388,000 respectively. The SEC's complaint names Bennett's wife as a relief defendant for the purposes of seeking disgorgement of unlawful profits in brokerage accounts that Bennett held jointly with her. SEC Staff Credits. Investigation by Charles Riely and Amelia Cottrell of the SEC's Market Abuse Unit in New York; and Layla Mayer of the SEC's NY Regional Office. The SEC's investigation is continuing. For further details, go to:  [SEC Complaint vs. Scott Allen, John Michael Bennett, et al] and [SEC PR 11-183, 9/15/11].