Insider Trading, a Breach of Duty
Insider trading has long been a focus for the Commission’s enforcement program. It is a violation of Section 10(b) of the Exchange Act and Rule 10(b)-5 thereunder. Yet those provisions do not even mention insider trading. The violation has traditionally been viewed as a breach of duty – the insider information was entrusted to the person for the benefit of the company, not the insider. The Commission’s latest case in this area highlights the point, SEC v. Gupta, Civil Action No. 1:24-cv-12316 (D. Mass. Filed Sept. 10, 2024).
The case centers on a transaction involving two pharmaceutical firms. One is Epizme, Inc. a publicly traded Massachusetts company. The other is Ipsen Biopharmaceuticals, Inc., a public French biopharmaceutical firm which announced on June 27, 2022, that it was being acquired by Epizme. The firm’s securities were traded on NASDAQ. Ipsen, based in Paris, had about 5,000 employees in thirty countries. One of its global hubs is in Cambridge.
Mr. Gupta joined Ipsen in September 2019. He was a “Business Insight Lead.” In that role Mr. Gupta managed data analytics projects to facilitate the assessment of business strategies. In November 2021 he was promoted to Director of Data Strategy and Operations.
In January 2022 Ipsen and Epizyme first discussed the possibility of Ipsen purchasing Epizyme’s premier product, a cancer drug called Tarverik. A confidentiality agreement was executed on February 7, 2022. By early April the two firms had progressed to discussing a potential acquisition of Epizyme by Ipsen.
As the discussions between the two companies progressed, Mr. Gupta became aware of the potential deal. On March 25, 2022, he sent an email to his colleagues thanking them for bringing him into the deal. He attached a slide deck titled Ipsen US One – Capacity Planning, which related to the commercial sales model for Ipsen’s oncology business. Later he attended a meeting focused on Ipsen’s strategy for oncology acquisitions. In early April Mr. Gupta had additional conversations with an Ipsen employee related to that business. Subsequently, he continued to be involved in the conversations. On June 27, 2022 Mr. Gupta was tasked with projects regarding the transaction.
Between April 7, 2022, and June 24, 2022, Mr. Gupta purchased shares of Epizyme on 27 different days. He accumulated 325,317 shares at prices ranging from $0.43 to $1.05 per share. Following the deal announcement on June 27 the share price increased 65% from the prior day close. Mr. Gupta had profits of $250,078.27.
The complaint alleges violations of Exchange Act Section 10(b) and Rule 10(b)-5. Defendant resolved the charges, consenting to the entry of a permanent injunction based on the Section and Rule and an officer/director bar. Monetary relief will be considered at a later date. The U.S. Attorney’s Office filed parallel criminal charges. See Lit. Rel. No. 26103 (Sept. 10, 2024).