Wharton alums settle insider trading charges

Two men who received their master’s degrees from Wharton settled federal insider trading allegations with the Securities and Exchange Commission last week.

The charges were connected to a 2007 acquisition of the biotechnology company MedImmune (MEDI) by pharmaceutical giant AstraZeneca. Executive Director of Business Development at Merck & Co. James Self Jr., who earned an MBA from Wharton in 1996, leaked nonpublic information to his longtime friend and Wharton classmate Stephen Goldfield about Merck’s evaluation of whether to buy out MEDI, according to an SEC litigation release.

The original SEC complaint states that, in attempting to “boost his reputation in Goldfield’s eyes and show Goldfield that he was working on important matters,” Self disclosed a confidential deal sheet to Goldfield in March 2007 and additional confidential information over the course of the next few weeks.

According to SEC findings, Self would communicate by telephone with Goldfield in code, telling him “the weather is in the 50s,” indicating Merck’s approximate bid in millions for MEDI. Based on the information he received from Self, Goldfield, the former manager of the hedge fund Imperial Capital Management, LLC, quickly purchased 17,000 MEDI call options and 255,000 shares of MEDI stock.

Although AstraZeneca, rather than Merck, wound up purchasing MEDI in April 2007, Goldfield made windfall profits from the transaction, raking in $14 million when he sold off all of his MEDI position four days after the takeover.

Both Self and Goldfield have signed consent judgments with the SEC, meaning they have neither admitted nor denied guilt in the matter. Goldfield agreed to an order for disgorgement for $16.65 million, which includes the additional accrued interest on the unlawful profits. Within a month of netting the $14 million, Goldfield squandered away all of his profits by “aggressively trading index options,” according to the SEC. As he is no longer able to pay back the full amount, Goldfield has been reassessed a $600,000 payment based on his sworn statement of financial condition.

Self was imposed a civil penalty of $50,000, similarly based on his sworn statements. According to Daniel Hawke, the Philadelphia regional SEC director and head of the Market Abuse Unit of the SEC Division of Enforcement, however, both the tipper and tipee are equally held liable for all unlawful profits. As such, the discrepancy between the amount of Self’s and Goldfield’s penalties was not based on either offense being deemed more or less criminal. Rather, each was assessed solely on the basis of each defendant’s assets, liabilities and expenses.

“We want to make it sting,” Hawke said, “but not so much that we put their families out on the street.”

Hawke credited the “novel investigative approaches” implemented by the Market Abuse Unit with nabbing Self and Goldfield. He explained that although the incidence of insider trading was exposed by surveillance, it was not by ordinary monitoring, but rather “picked up through completely new techniques” — details of which he declined to specify.

Neither John Grugan nor Robert Heim, the attorneys for Self and Goldfield, respectively, foresaw any chance of civil suits being filed against their clients by either AstraZeneca or its shareholders. According to Heim, this was strictly an SEC matter, and “the settlement put the issue to rest” for good. In a written statement, Heim said Goldfield is “happy with the settlement and is looking forward to putting the matter behind him.”

This article had been corrected from the print version to reflect that this case did not involve trades in derivatives.

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