SEC’s Statement On Jury’s Verdict In Trial of Mathew Panuwat For Insider Trading
On April 5, 2024, the Securities and Exchange Commission (SEC) obtained a verdict in its favor in a case wherein as a plaintiff it alleged Defendant Matthew Panuwat for insider trading and thus violating the federal securities laws. The SEC obtained the verdict after an eight-day jury trial in the U.S. District Court for the Northern District of California.
Facts Of The Case
Matthew Panuwat, previously employed as a business development executive at Medivation Inc. has been implicated in insider trading. Medivation Inc. is a mid-sized biopharmaceutical company specializing in oncology.
During his tenure at Medivation, Panuwat received confidential, nonpublic information via email from Medivation's CEO on August 18, 2016. The email indicated an imminent acquisition by the pharmaceutical giant, Pfizer Inc.
As a representative of Medivation, Panuwat was entrusted with maintaining trust and confidentiality. This included refraining from exploiting Medivation's proprietary information for personal gain.
Despite his obligations, Panuwat used Medivation's insider knowledge to purchase out-of-the-money, short-term call options in Incyte Corporation shortly after receiving this highly confidential information. Incyte Corporation is another mid-cap biopharmaceutical company focused on oncology. Panuwat purchased the call options in Incyte Corporation as he anticipated a rise in its value upon the public announcement of Medivation's acquisition by Pfizer. He did not disclose his Incyte trades to anyone at Medivation.
Subsequently, on August 22, 2016, Medivation's acquisition by Pfizer was publicly announced. This resulted in a significant increase in the price of Medivation shares by approximately 20%. Concurrently, Incyte's stock price surged by approximately 8% on the news of Medivation's acquisition, doubling the value of Panuwat's Incyte stock options. Thus, Panuwat's insider trading yielded illicit profits of $107,066 by trading ahead of the announcement.
Through these actions, as detailed further herein, Panuwat violated Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b–5.
Thus, the SEC sought a court order to stop Panuwat from future violations of Section 10(b) of the Exchange Act and Rule 10b-5. Further, the court order imposed a civil monetary penalty, prohibited Panuwat from holding positions as an officer or director of a public company, and granted other suitable relief.
Charges Against Matthew Panuwat
Panuwat As The Business Development Director At Medivation Commits Not To Use Its Confidential Information For Trading
In 2016, Panuwat was the Senior Director of Business Development at Medivation. In this capacity, Panuwat's responsibilities encompassed overseeing business development initiatives within the company. Further, Panuwat reported directly to the Chief Financial Officer at Medivation.
As the Senior Director of Business Development at Medivation, Panuwat’s duties involved identifying, assessing, and pursuing strategic opportunities. These opportunities were aimed at expanding Medivation's portfolio of drug products and development pipeline, primarily through acquisitions and licensing agreements.
In addition to identifying and pursuing strategic opportunities, Panuwat closely monitored the stock prices, product portfolios, and development pipelines of various biopharmaceutical firms, including Incyte within this role. He also kept himself abreast of the merger and acquisition activities within the industry.
Since Panuwat identified and assessed strategic opportunities at Medivation Inc., he was entrusted with confidential information about actual or potential transactions involving Medivation, such as acquisitions involving or by the company.
It’s important to note that Panuwat agreed to maintain the confidentiality of the information he gained during his tenure upon commencing his employment with Medivation. Further, he pledged not to utilize such information for personal gain, except in the best interest of Medivation.
Additionally, Panuwat acknowledged and endorsed Medivation's insider trading policy, which explicitly prohibited employees from exploiting material nonpublic information related to Medivation or any other publicly traded company for personal financial gain through trading in Medivation's securities or those of another company.
Thus, the policy underscored the illegal nature of leveraging such information for personal advantage, emphasizing the importance of using it solely for the company’s benefit.
Medivation Becomes The Acquisition Target
In April 2016, Medivation enlisted the services of investment banks to provide counsel regarding the company's strategic directions, prompted by recent overtures from a French pharmaceutical firm expressing interest in acquiring Medivation.
Panuwat collaborated closely with Medivation's appointed investment banks and senior executives leveraging his extensive background as an investment banker and a specialization in pharmaceutical industry deals.
In collaboration with the investment banks, Panuwat assessed Medivation’s options, including a prospective merger with another entity. During his involvement with the investment banks advising Medivation on its strategic pathways, Panuwat examined presentations crafted by these bankers. These presentations delved into comparisons between Medivation and other biopharmaceutical entities deemed comparable by the banks based on their professional assessments.
Specifically, the presentations drew parallels between Medivation and Incyte, highlighting them as valuable mid-cap companies focusing on oncology and possessing FDA-approved drugs commercially available in the U.S. market.
Panuwat knew that in 2016, large-cap pharmaceutical companies were keen on acquiring mid-cap biopharmaceutical companies specializing in oncology with established commercial-stage drugs. He recognized the scarcity of such acquisition targets, with Medivation and Incyte standing out as prime candidates. Furthermore, Panuwat understood the significant impact of such acquisitions on the companies involved, as evidenced by the notable stock price increases experienced by Medivation and Incyte following a similar acquisition in 2015.
In discussions with the investment banks advising Medivation, Panuwat suggested considering Incyte as a comparable company to Medivation. Further, throughout this period, Panuwat diligently monitored the stock prices of Incyte, Medivation, and other players in the biopharmaceutical sector as part of his role at Medivation. Incyte was frequently cited as a peer company to Medivation in analyst reports from 2015 to 2016.
Then, in July and August 2016, Medivation probed the interest of larger pharmaceutical firms in acquiring the company, particularly at a price surpassing that of the French pharmaceutical company offered earlier in the year.
Panuwat played an integral role in these discussions. As Medivation discreetly sought bids from potential acquirers, Panuwat was privy to information that investment bankers and senior Medivation executives shared regarding the due diligence processes and bid offers from prospective acquirers. He actively contributed to coordinating Medivation's responses to various due diligence inquiries during this period and participated in board meetings discussing the company's strategic options concerning a potential merger.
Panuwat Leverages Medivation’s Confidential Information To Trade Incyte Options
In August 2016, Panuwat received confidential information through his employment indicating that Medivation was on the brink of being acquired at a significant premium to its current stock price. The following are the details.
On August 12, 2016, Medivation's investment bankers sent Panuwat a summary of bids from potential acquirers. The summary revealed that at least five parties offered an all-cash acquisition of Medivation at prices exceeding its current share value. Further, the summary indicated that all the parties were ready to expedite the process.
Then, a board meeting was conducted on Sunday, August 14, 2016. During the meeting, Panuwat, alongside other Medivation directors, authorized the investment bankers to dispatch letters to the final bidders, including Pfizer. The letters requested the bidders, including Pfizer, to send their final comments on the merger agreement by August 18, 2016, and final bids to acquire Medivation by August 19, 2016. However, before this meeting, Panuwat had received confidential copies of these proposed letters from Medivation's investment bankers.
Note that various communications Panuwat received from the investment bankers during this period indicated the urgency of certain potential acquirers to proceed swiftly with the acquisition.
Finally, August 22, 2016, was identified as the target date for the public announcement of the acquisition.
Next, on Thursday, August 18, 2016, Medivation's CEO informed a group of Medivation executives, including Panuwat, via email that Pfizer's head of business development had expressed strong interest in acquiring Medivation. The CEO mentioned that Pfizer's CEO would contact Medivation's CEO later that day to confirm this interest and finalize details regarding the impending acquisition.
As can be observed, Panuwat gained knowledge of all this information through his employment at Medivation and was aware of its material and nonpublic nature. He also knew, or disregarded the fact, that this information about Medivation's imminent acquisition was significant to Medivation and Incyte, a comparable publicly traded company in the biopharmaceutical industry.
However, a reasonable investor in either Medivation or Incyte would perceive the undisclosed acquisition of Medivation as a significant alteration of the available information. That’s because the public disclosure of Medivation's acquisition at a substantial premium would likely positively impact Incyte's stock price, making it a more appealing acquisition target.
Thus, despite his duty of confidentiality and prohibition against trading on Medivation's confidential information, Panuwat promptly utilized this information for trading purposes. On August 18, 2016, shortly after receiving the email from Medivation's CEO, Panuwat executed trades by purchasing 578 Incyte call option contracts using his work computer. These options had strike prices significantly higher than Incyte's current stock price and an expiration date of September 16, 2016. Panuwat purchased Incyte call option contracts as he anticipated that Incyte's stock price would rise upon the public disclosure of the impending Medivation acquisition announcement. Notably, Panuwat had no prior history of trading Incyte stock or options.
Also, Panuwat did not seek approval or disclose his Incyte options trades to anyone at Medivation. His undisclosed and self-serving use of Medivation's information for personal securities trading violated his duty of trust and confidence, defrauding Medivation and undermining investor confidence in the securities markets.
Two days after Panuwat purchased the Incyte call options, on August 20, 2016, Medivation entered into a merger agreement with Pfizer. Analyst reports had previously included Incyte as a comparable publicly traded company in Pfizer's evaluations at a $81.50 per share offer to acquire Medivation. This offer represented a significant premium over a prior unsolicited acquisition proposal of $52.50 per share that the French pharmaceutical company made in April 2016.
On Monday, August 22, 2016, before the market opened, and four days after Panuwat's Incyte options purchase, Medivation publicly announced its agreement to be acquired by Pfizer for $81.50 per share, a 21.4% premium over its previous closing price of $67.16 per share on Friday, August 19, 2016. At the market opening on August 22, 2016, Medivation's stock price rose significantly to $80.62, a 20% increase over the prior day's closing price.
Incyte's stock price also experienced a substantial increase on August 22, 2016. Its stock opened at $79.80, reached a high of $84.39, and closed at $81.98, approximately 8% higher than the previous day's close. Thus, the announcement of Medivation's acquisition positively impacted Incyte's stock price, as noted in analyst reports published on August 22 and 23, 2016.
Panuwat's trading in Incyte call options ahead of the August 22, 2016, Medivation announcement resulted in illicit gains of $107,066.
SEC’s Claims Against The Defendant
Defendant Panuwat, through the actions detailed above, either directly or indirectly, about the purchase or sale of securities, utilizing interstate commerce or postal services, and with knowledge of wrongdoing:
(1) Utilized methods, schemes, or strategies to deceive;
(2) Provided false information regarding material facts or omitted crucial details essential for ensuring the accuracy of statements made, considering the circumstances in which they were made, thereby misleading others; and
(3) Conducted activities, behaviors, or business practices that constituted or would constitute deception or fraudulence against individuals, including buyers and sellers of securities.
As a result, Defendant Panuwat violated and unless restrained and prevented, is likely to violate Section 10(b) of the Exchange Act and Rule 10b-5. Presently, Panuwat holds the position of Chief Business Officer at another publicly traded biopharmaceutical company performing duties akin to those in his previous role at Medivation. In this capacity, he has access to similarly significant nonpublic information and faces opportunities to contravene securities laws again.
SEC Seeks Relief
1. Permanently restrain Defendant Panuwat from directly or indirectly breaching Section 10(b) of the Exchange Act and Rule 10b-5.
2. Mandate Defendant Panuwat to pay a civil monetary penalty according to Section 21A of the Exchange Act.
3. Bar Defendant Panuwat from holding any position as an officer or director in any entity with a class of securities registered with the SEC under Section 12 of the Exchange Act or mandated to file reports under Section 15(d) of the Exchange Act, as per Section 21(d)(2) of the Exchange Act.
4. Maintain jurisdiction over this case in line with equitable principles and the Federal Rules of Civil Procedure to enforce and execute the terms of all orders and decrees issued, or to consider any appropriate application or motion for further relief within the court's jurisdiction.
5. Provide any additional relief deemed just and necessary by this Court.
Key Takeaways For Investors
Insider trading refers to the buying or selling of a publicly traded company's stock by someone who has non-public, material information about that stock. This privileged information could be anything that would significantly impact the stock price if made public, such as financial results, mergers, acquisitions, or other major developments within the company.
In the United States, insider trading is prohibited under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by the SEC. These laws make it illegal for individuals with access to confidential, non-public information about a company to trade its stock or provide that information to others who then trade on it.
As observed in the case discussed above, the consequences of insider trading can be severe, both legally and financially. Those convicted of insider trading may face significant legal consequences, including hefty fines and imprisonment. In addition to criminal penalties, insider traders may face civil enforcement actions brought by regulatory authorities such as the SEC. These actions can result in injunctions, disgorgement of ill-gotten gains, and civil penalties.
As an investor, you should keep abreast of regulatory changes and updates related to insider trading laws and regulations. This is because understanding these rules can help you recognize and avoid potential illegal activities.