A jury found two brothers guilty of using insider information to make an illicit $50,000 profit on the stock market in at least the eighth insider trading prosecution related to the 2010 purchase of a Chattanooga company by a French pharmaceutical giant.
The U.S. Securities and Exchange Commission found that Andrew Jacobs passed secret information to his brother, Leslie Jacobs of Cleveland, Ohio, about a pending offer by Paris, France-based Sanofi-Aventis to buy Chattanooga-based Chattem.
The brothers had obtained the information about the sale from Blair Remey, Andrew Jacobs' brother-in-law, who was the chief marketing executive at Chattem. Remey was worried about his career after the merger and was looking for advice, since Andrew Jacobs had previously worked at a company that was acquired by a European business.
After speaking with Remey, Andrew Jacobs called his brother, who soon bought 2,000 shares of Chattem for about $137,000 prior to the public announcement of Chattem's purchase by Sanofi.
Once the announcement became public, Chattem's stock rose 32 percent, which commonly happens when one company announces its intention to buy another. That's when Leslie Jacobs sold his shares for a profit of $49,457.21, according to the SEC.
"We are gratified that the jury unanimously found that both defendants committed insider trading in the context of a tender offer," said Andrew Ceresney, director of the SEC's enforcement division. "The defendants were found to have violated one of the commission's core anti-fraud provisions that is aimed at protecting the investing public by preventing those with insider knowledge from illegally profiting from their fraudulent trading."
But the SEC's victory in federal court was not complete. The federal jury found in favor of the Jacobs brothers on one of the insider-trading charges that was brought under a broader statute, according to news reports.
Contact staff writer Ellis Smith at firstname.lastname@example.org or 423-757-6315.