The US Securities and Exchange Commission announced a settlement with scientific consultant Hugh Lee Sweeney for insider trading in advance of a negative news announcement.
According to the SECs order, Hugh Lee Sweeney was engaged as a consultant by Catabasis Pharmaceuticals, Inc. (now known as Astria Therapeutics, Inc.) from approximately July 2012 to November 2020. Pursuant to this engagement, Sweeney was to provide data analysis and consulting services related to the development of a drug, edasalonexant, for the treatment of muscular dystrophy. As part of the consulting agreement, Sweeney acknowledged that his relationship with Catabasis was one of high trust and confidence, and he agreed not to use proprietary information for personal benefit.
Despite this agreement, on October 21, 2020, Sweeney made use of non-public information regarding negative clinical trial results of a blinded study of the drug, selling 15,000 shares of Catabasis stock in advance of any public announcement on the negative results from the trial, and his remaining 82 shares of Catabasis stock the following day.
On October 26, 2020, Catabasis issued a press release announcing the negative results and the discontinuation of edasalonexent development, causing Catabasis’ stock price to decrease 70.9% — from $5.36 per share to $1.56 per share.
The SEC order found that Sweeney violated the:
- Antifraud Provisions of Section 17(a) of the Securities Act of 1933
- Section 10(b) pf the Securities Exchange Act of 1934 and Rule 10b-5 thereunder
Sweeney, without confirming or denying the SEC’s claims, consented to a cease-and-desist order. He was ordered to pay disgorgement of $57,931 representing the losses he avoided by trading Catabasis stock ahead of the public announcement, as well as prejudgment interest of $2,499.71 and a civil money penalty of $57,931.