Investment Adviser Pled Guilty to Insider Trading

Investment Adviser Pled Guilty to Insider Trading

David hobson, who served as an investment adviser in the Providence, Rhode Island, offices of two different national broker-dealer and investment advisers (“Brokerage Firm-1” and “Brokerage Firm-2”), pled guilty to engaging in a scheme to commit insider trading in connection with deals involving a pharmaceutical company (the “Pharma Company”) at which Michael Maciocio, Hobson’s friend and client, worked.  Maciocio, who had been employed by the Pharma Company, regularly possessed material, nonpublic information (“Inside Information”) concerning pending acquisitions and transactions under consideration by the Pharma Company.  From at least 2008 through April 2014, Maciocio breached his duty of confidentiality to the Pharma Company by providing Inside Information about potential acquisitions and transactions to his friend and long-time broker, Hobson.  Hobson, in turn, used the Inside Information to execute profitable securities trades for himself, for Maciocio, and for other clients of Hobson’s.

According to the allegations in the charging documents, including the Information and Indictment, and statements made in court proceedings:

From in or about May 2008 through in or about April 2014, Maciocio and Hobson participated in a scheme to commit insider trading in advance of and in connection with acquisitions and transactions under consideration by the Pharma Company.  Maciocio and Hobson were childhood friends and Hobson had served as Maciocio’s investment adviser and broker for many years.

Maciocio learned about the impending transactions through his role as a Master Planner in the Active Pharmaceutical Ingredient Supply Chain Group at the Pharma Company.  In that role, Maciocio was tasked with evaluating manufacturing demands and capacity within the Pharma Company, and was consulted about potential acquisitions, to assist in determining whether the Pharma Company would be able to manufacture any new product in-house.  Although Maciocio was not typically provided with the name of the target acquisition, he used the Inside Information he received – including the Pharma Company’s code name of the acquisition, the drug indication, the dosage, the phase of any clinical trial, and the chemical structure of the drug – to uncover the true identity of the target company.  He was at times aided in this task by Hobson.

Having learned the Inside Information about these impending transactions, Maciocio, in breach of fiduciary duties and other duties of trust and confidence owed to the Pharma Company, traded on his own behalf and tipped Hobson so that Hobson could use the information to trade both for himself and for Maciocio.  Hobson also used the Inside Information to trade in other of his clients’ accounts, first at Brokerage Firm-1 and later at Brokerage Firm-2.

Hobson used the Inside Information that he received from Maciocio to make profitable trades in, among other securities: Medivation, Inc., Ardea Biosciences, Inc., and Furiex Pharmaceuticals, Inc.  As a result of the scheme, Hobson reaped more than $350,000 in ill-gotten gains for himself, for Maciocio, and for certain of Hobson’s other clients.

Hobson, 47, pled guilty to one count of conspiracy to commit securities fraud, which carries a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense; and to one count of securities fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $5 million or twice the gross gain or loss from the offense;

Maciocio, 46, pled guilty on May 20, 2016, to one count of conspiracy to commit securities fraud, one count of conspiracy to commit wire fraud, and two counts of securities fraud.  Count One carries a maximum sentence of five years in prison.  Counts Two through Four each carry a maximum sentence of 20 years in prison.  The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense.