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Brothers Found Liable for Insider Trading

Tuesday, March 11, 2014

March 6 -- Two brothers were found liable March 6 in the U.S. District Court for the Northern District of Ohio on charges that traded on inside information about a tender offer for Chattem Inc., a Tennessee-based pharmaceutical product distributor, by Sanofi-Aventis, a French drug company (SEC v. Jacobs, N.D. Ohio, 1:13-cv-01289, 3/6/14).

The Securities and Exchange Commission alleged that defendant Andrew W. Jacobs learned about the pending bid during a confidential conversation with his brother-in-law, who was then a Chattem executive (114 SLD, 6/13/13). Allegedly, although asked to keep the conversation confidential, Andrew Jacobs tipped his brother, Leslie J. Jacobs II to the inside information. A few days later, the SEC alleged, Leslie Jacobs purchased 2,000 shares of Chattem, which he sold following the Dec. 21, 2009 announcement of the tender offer for a profit of $49,457.21.

After a trial, a jury found both men liable under 1934 Securities Exchange Act Section 14(e) and Rule 14e-3, barring fraud in connection with a tender offer. It absolved the defendants of violating Section 10(b) and Rule 10b-5, the act's general antifraud proscription.

In a statement, SEC Enforcement Director Andrew Ceresney said, “We are gratified that the jury unanimously found that both defendants committed insider trading in the context of a tender offer. The defendants were found to have violated one of the Commission's core anti-fraud provisions that is aimed at protecting the investing public by preventing those with insider knowledge from illegally profiting from their fraudulent trading."

Andrew Jacobs is represented by David Wilson of Thompson Hine LLP, Washington. Leslie Jacobs is represented by Edmund Searby of BakerHostetler, Cleveland.

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