SEC Accuses Seattle Genetics Employee of Insider Trading
Seattle Genetics had some great news for shareholders and cancer patients last September, and now federal securities regulators say it was too good for one of the company’s managers and a member of his family.
The Securities and Exchange Commission has accused Zizhong (James) Fan, an employee of Seattle Genetics, of tipping off his family member Zishen (Brandon) Fan in advance about positive clinical trial results that were eventually made public in September. The SEC has obtained a court order to freeze a bank and brokerage account which it says contains $800,000 in illegal profits, according to an SEC statement. Here’s the full complaint from the SEC, filed in the U.S. District Court for Western Washington.
The big clinical trial news at Seattle Genetics first came to light in public on September 27. That’s when the company issued a press release saying its “empowered antibody” for patients with relapsed forms of Hodgkin’s disease was able to shrink tumors by 50 percent or more for a startling 75 percent of the 102 patients who enrolled in a pivotal trial. That success, and a second, even more promising trial of the drug for another form of lymphoma that was later presented at a medical meeting, caused Seattle Genetics stock to climb more than 60 percent last year.
Zizhong Fan, through his role as a manager of clinical programming at Seattle Genetics, knew about the results as they were coming in and being prepared for presentations to senior management, the SEC alleges in its complaint. On September 24, three days before the public announcement of positive results, Fan’s family member made his biggest purchases of Seattle Genetics derivative securities and bought $150,000 worth of stock.
The SEC says it contacted both members of the Fan family on January 13. Almost immediately after that contact, Zishen sought to wire several hundred thousand dollars to a bank in China, while Zizhong informed Seattle Genetics that he was leaving unexpectedly for China, according to the SEC statement.
The SEC said the Chicago Board Options Exchange assisted in its investigation, and that Seattle Genetics has cooperated. Seattle Genetics spokeswoman Peggy Pinkston said this in an e-mailed statement to Xconomy:
“We are surprised by the allegations and, if proven true, we are shocked and disappointed. Seattle Genetics takes compliance and insider trading laws seriously, and we have a strong compliance culture. We believe this is an isolated incident, and that the authorities are focused solely on this one employee. We have no reason to believe the authorities suspect wrongdoing by any other Seattle Genetics employee, officer or director, or the company itself. The employee is on administrative leave, but we otherwise can’t comment on the allegations and the ongoing investigation.”