July 6, 2023

SEC charges five close friends, including a police chief, with insider trading

The Securities and Exchange Commission recently charged five individuals with insider trading in the US District Court for the Southern District of New York for their involvement in a scheme to trade in securities of Portola Pharmaceuticals Inc. before the planned acquisition was announced by global pharmaceutical company Alexion Pharmaceuticals Inc. in May 2020.

According to the SEC’s complaint, which was filed on June 29, 2023, Joseph Dupont, a vice president at Alexion who was also part of the acquisition team, shared material nonpublic information (“MNPI”) with his childhood friend Shawn Cronin in violation of his duty of trust and confidence to Alexion.  During the relevant time period, Cronin was allegedly a Sergeant with the local police department, and Dupont, as a reserve officer, was Cronin’s subordinate.  Cronin reportedly became Chief of the department in August 2022.  Based on the MNPI, Cronin allegedly purchased Portola securities and shared the information with close friends Jarett Mendoza and Slava (Stanley) Kaplan, both of whom purchased Portola securities based on the tip.  In exchange for the tip, Kaplan allegedly provided Cronin with trading advice and also decided to share the MNPI with his friend and colleague Paul Feldman, who is accused of aggressively purchasing a variety of Portola securities based on the tip.  The SEC further alleges that Kaplan and Feldman shared the information with family members and friends who also purchased Portola stock.  Following Alexion’s announcement of the planned acquisition on May 5, 2020, Portola’s stock increased more than 130 percent.  The SEC alleges that the four defendants who engaged in illicit trading realized more than $2.3 million in total profits and individually obtained the following amounts: Cronin- $72,000; Mendoza – $39,000; Kaplan – $472,000; and Feldman – $1.73 million.  According to the SEC, the friends and family members of Kaplan and Feldman who purchased Portola stock based on the tip allegedly generated more than $1.7 million in additional profits.

The SEC charged all five defendants with violating the antifraud and tender offer provisions of the Securities Exchange Act of 1934, including Section 10(b) and Rule 10b-5 thereunder, and Section 14(e) and Rule 14e-3 thereunder.  The SEC is seeking the disgorgement of their ill-gotten gains with pre-judgment interest and requesting payment of civil monetary penalties.  The SEC is also requesting that court permanently ban the defendants from serving as officers or directors of any registered company.

Also on June 29, 2023, the US Attorney’s Office for the Southern District of New York filed parallel criminal charges against the five defendants, which include charges of securities fraud and tender offer fraud.  Additional charges of conspiracy to commit securities fraud were also filed against Kaplan and Feldman.  On the same day, the USAO unsealed charges against Mendoza and disclosed that he had pleaded guilty pursuant to a cooperation agreement.

SEC Press Release | SEC Complaint | USAO Press Release | USAO Indictment