Justice and the US Securities and Exchange Commission have filed charges against Ramkumar Rayapureddy, a Pennsylvania resident who served as head of information technology operations and later chief information officer at Mylan N.V.*, a pharmaceutical company headquartered in Pennsylvania. The criminal indictment, filed in US District Court for the Western District of Pennsylvania, alleges that Rayapureddy and Dayakar Mallu, vice president of global operations technology at Mylan until 2017, conspired to commit, and did commit, securities fraud in violation of 15 USC §§ 78j(b) and 78ff, and 17 CFR §§ 240.10b-5 and 240.10b5-2 by trading on material nonpublic information acquired by Rayapureddy in the course of his employment. The SEC alleges that Rayapureddy’s conduct violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
Specifically, in Autumn 2017 Rayapureddy allegedly misappropriated information relating to the anticipated approval of Mylan’s abbreviated new drug applications for a generic version of a multiple sclerosis drug, filed with the US Food and Drug Administration; Rayapureddy shared the information with Mallu, and within two days Mallu purchased 1,200 call options. The value of the call options increased when, a few days later, Mylan announced the FDA approval, and the company’s share price rose by almost 14 percent. Rayapureddy was compensated for his tip by Mallu’s agents outside of the United States.
On another occasion, in February 2019, Rayapureddy allegedly tipped Mallu with material non-public information about Mylan’s poor earnings results in advance of the public announcement. Based on this information, Mallu closed 1,407 pre-existing Mylan put option contracts, sold 5,502 Mylan call options, and purchased 7,074 Mylan put options. Following these transactions and the drop in Mylan’s stock price after announcement of the results, Rayapureddy was compensated for the information in cash in India.
Later in 2019, on several occasions Rayapureddy shared material non-public information with Mallu concerning Mylan’s anticipated announcement of a merger with Upjohn. Based on this information, Mallu purchased 13,003 Mylan call options, and allegedly compensated Rayapureddy in cash in India after the stock trades settled. Altogether, Mallu realized net profits of over $4 million from the Mylan transactions, and transferred a portion of this sum to Rayapureddy.
Mallu was charged separately in September 2021, both by the SEC and the DOJ. He pleaded guilty to one count of conspiracy to commit securities fraud and one count of aiding in the preparation of a false tax return, and is scheduled to be sentenced in February 2023. In the SEC case against him, Mallu consented to the entry of a judgment prohibiting him from acting as officer or director of a registered issuer, and from committing further securities violations. Pursuant to the consent judgment, Mallu may be ordered to pay a civil penalty in an amount to be determined by the court.
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*Mylan, a publicly traded company, merged with Upjohn in November 2020. Upjohn is a division of Pfizer, Inc.
SEC press release (Rayapureddy) | Complaint (Rayapureddy) |
Indictment (Rayapureddy | DOJ press release (Mallu) | SEC press release (Mallu)