SEC accuses doctors of insider trading after clinical trial halted
Two San Bernardino doctors agreed to pay more than $100,000 in penalties for allegedly selling a pharmaceutical company’s stock after learning that regulators were halting a clinical trial of a prostate cancer drug they were testing.
The Securities and Exchange Commission accused Dr. Franklin Chu and Dr. Daniel Lama of insider trading after they avoided significant losses by selling shares of GTx Inc. before the Memphis company disclosed it had been ordered to stop testing the drug Capesaris.
Chu and Lama, who practice at San Bernardino Urological Associates Medical Group, had been involved in a clinical trial of the drug, a role that enabled them to get advance word that the Food and Drug Administration was halting the trial because of safety concerns.
They sold shares of GTx several days before the company publicly announced the FDA’s decision, news that caused its stock to fall 36%, the SEC said.
By selling ahead of the bad news, Chu avoided $34,081 in losses and Lama saved $11,502, the SEC said in a lawsuit. Chu agreed to pay $70,000 to settle the SEC case. Lama will pay nearly $47,000.
The doctors had received advance notice of the FDA hold so they could safely remove patients from the drug trials as quickly as possible, the SEC said.
“It’s disheartening that they immediately misused that information for personal financial gain,” said Scott Friestad, associate director in the SEC’s enforcement division. “Clinical drug trial information often is critical to investors in this sector, so we will continue to vigorously investigate and prosecute those who illegally trade on this information before it’s available to the market.”
The doctors settled the case without admitting or denying the allegations.
Chu, reached by telephone Monday, said he deeply regretted his actions.
“I am extremely sorry about what I did,” the doctor said. “I’m devastated by this.
“I was not trying to make money. I was just trying to not lose any more money than I already had.”
Chu, 62, said he intends to continue practicing medicine.
“I love what I do. I’ve been doing this for 37 years,” he said. “I love the fact that we’re able to help developing new drugs, in addition to practicing medicine. I love practicing. Several of the drugs on the market I have a lot to do with.”
Lama said he did not know that it was wrong for him to sell when he did.
“But unfortunately it happened,” Lama said. “I am very new at this. I’ve never bought stock before.”
According to its website, San Bernardino Urological Associates Medical Group launched its research and trial program in 1998 “with the goal to provide our patients with the most cutting edge urological care.” It has conducted more than 200 industry and federally funded studies.
