Genentech Chief’s Wife Settles SEC’s Insider Trading Charges
The wife of the president of Genentech Inc. settled charges on Tuesday that she provided confidential information that allowed her brother and a friend to make an illegal stock profit of $127,400 when the biotechnology firm was partly acquired by another company.
The Securities and Exchange Commission filed the civil insider trading charges Tuesday against Mollie E. Raab, wife of G. Kirk Raab, Genentech’s president and chief executive; her brother, Michael G. Painter, and a friend of her brother, Joseph Jefferies.
All three defendants settled the charges without admitting or denying any wrongdoing. Neither Kirk Raab nor Genentech was the subject of the investigation, and the company said its president and his wife cooperated with the SEC.
According to the SEC complaint, Mollie Raab urged her brother to buy Genentech stock in advance of the public announcement last Feb. 2 that the Swiss pharmaceutical giant Roche Holding Ltd. was acquiring a 60% interest in the South San Francisco company for $2.1 billion.
The SEC complaint said she told her brother on several occasions that “some good things were about to happen” to the company and suggested that he buy a few thousand dollars worth of stock, even if he had to borrow the funds. The SEC also said she told him to keep the purchase confidential and make it in the name of a “trustworthy” friend.
A Genentech spokesman said that Painter was having financial difficulties at the time and that his wife was pregnant. The spokesman suggested that the scheme got out of hand when options contracts got involved.
Painter shared the information with Jefferies, a co-worker at a San Antonio sales and distribution firm, and Jefferies acquired 300 option contracts on Genentech the day before the merger announcement, according to the SEC. Jefferies and Painter had an understanding that Painter would acquire about half of the options, according to the SEC.
In the settlement, Mollie Raab agreed to pay a civil fine of $162,400, although she did not trade on the inside information herself. The Insider Trading Sanctions Act provides for penalties against people who divulge confidential information even if they do not profit themselves.
“Mrs. Raab did not profit on the stock trades,” her husband said in a statement. “She knows it was wrong to have told her brother, who was having prolonged financial difficulty, and she accepts her penalty.”
Her attorney, Theodore A. Levine, said Raab was acknowledging that she made a mistake and was accepting responsibility for it by settling the case.
Jefferies agreed to return $133,700 in profit and interest from the illegal trading. In addition, he and Painter were fined $133,700 and $63,700, respectively. But the SEC waived the penalties because both men said they were unable to pay.
Painter’s attorney, Richard Morvillo, said his client was settling the case to avoid prolonged and costly litigation. Randolph L. Sherfy, who represents Jefferies, declined to comment.
The complaint did not disclose how the SEC learned of the purchases. Therese D. Pritchard, an assistant enforcement director at the agency, declined to comment on how the investigation started.
However, SEC investigators are often suspicious of options contracts acquired just before a major public announcement involving a company’s stock. Such contracts give the holder the right to buy the stock in the future and can provide hefty profits with little risk when acquired using inside information about the future stock’s direction.
In this case, the SEC said Jefferies sold the options after the merger announcement for a net profit of $127,400. In addition, the SEC said, some unnamed friends of Jefferies made another $70,000 on similar option contracts.
