SEC Charges Accountant and Attorneys with Insider Trading

Here is a recent insider trading situation in which the SEC brought charges against the accountants and attorneys. Considering the fairly small amount of stock price gain that the accountant Rosen reaped, does it make sense that he took such an obvious risk (see comment at bottom of the article)? It is likely that his State Board of Accountancy will either suspend or revoke his CPA license as well. What are your thoughts about this case? (Please click "continue to site" in the top right corner of the page to skip the advertisement.}

NEWARK, N.J. (SEPTEMBER 30, 2015)

BYMICHAEL COHN

The Securities and Exchange Commission has charged five Florida residents-including an accountant and two lawyers-with insider trading ahead of the acquisition of Pharmasset by Gilead Sciences.

The SEC alleged Monday in a complaint filed in federal court in Newark, N.J., that accountant Steven G. Rosen and attorneys Robert L. Spallina and Donald R. Tescher illegally traded on confidential information obtained from a mutual client who served on the board of directors of Princeton, N.J.-based Pharmasset.

During a meeting on Nov. 8, 2011, to talk about year-end personal tax and estate planning, the Pharmasset board member and his advisers, including Spallina, Tescher and Rosen, discussed the fact that the Pharmasset board was negotiating to sell the company at a significant premium, according to the SEC complaint. Immediately afterward, Spallina, Tescher and Rosen allegedly breached their duties of trust and confidence to their client by purchasing Pharmasset securities. The complaint further alleges that Spallina told Thomas J. Palermo, a financial adviser at a brokerage firm, and Brian H. Markowitz, then Spallina's next-door neighbor, about the negotiations to sell the company and both purchased Pharmasset securities based on Spallina's tips.

PARTNER INSIGHTS WHAT'S THIS?

After the public announcement of the acquisition by California-based Gilead Sciences on Nov. 21, 2011, the price of Pharmasset stock rose by 84 percent and the five defendants liquidated their holdings and allegedly reaped more than $234,000 of illegal profits.

Spallina, Tescher, Rosen, Palermo and Markowitz collectively agreed to pay approximately $489,000 to settle the charges with the SEC. The settlements are subject to court approval.

"Lawyers and accountants occupy special positions of trust and confidence and are required to protect the information entrusted to them by their clients," said Joseph G. Sansone, co-chief of the SEC's Market Abuse Unit, in a statement. "It is illegal for them to steal their clients' confidential information to trade securities for their own profit or to tip others."

Rosen, of Coral Springs, Fla., agreed to return $27,634, plus prejudgment interest of $1,991, and pay a $27,634 penalty. Spallina, of Parkland, Fla., agreed to return $39,156 of allegedly ill-gotten gains, plus prejudgment interest of $1,794, and pay a civil penalty of $39,156. The other defendants each agreed to settle the charges and pay disgorgement, prejudgment interest, and civil penalties without admitting or denying the SEC's allegations. Tescher, of Delray Beach, Fla., agreed to return $9,937, plus prejudgment interest of $690, and pay a $9,937 penalty.Palermo, of Parkland, Fla., agreed to return $124,528, plus prejudgment interest of $14,067, and pay a $124,528 penalty, and Markowitz, of Pompano Beach, Fla., agreed to return $32,931, plus prejudgment interest of $2,640, and pay a $32,931 penalty.