On May 5, 2022, the United States District Court for the Southern District of New York entered a final consent judgment against Sepehr Sarshar, who was charged with engaging in insider trading in advance of a tender offer. Sarshar was a founder of Auspex Pharmaceuticals, Inc. and had previously served as a board member for the company.
The Securities and Exchange Commission (SEC) has only recently caught former CEO Sepehr Sarshar, who worked for a well-known healthcare company, participating in illegal insider trading. Sarshar was trading on information that was not publicly available. This case shows the commitment of the SEC to crack down on illegal insider trading and serves as a cautionary story for other individuals who might be thinking about engaging in illegal trading practices.
The Context of the Investigation
Sepehr Sarshar was a participant in the process despite having previously served as an executive for a healthcare organization that was engaged in the process of acquiring another healthcare organization. During this time, Sepehr Sarshar was able to obtain sensitive information about the probable purchase, which he then put to use in order to trade stocks in the target company. During this time, he was able to get this information.
The behavior continued over a period of several months, during which time Sepehr Sarshar participated in illegal insider trading and obtained enormous profits by trading securities based on proprietary knowledge. During this time, the behavior was profitable for Sepehr Sarshar. On the other side, the SEC has started looking into his actions after they eventually became aware of it.
The Investigation Conducted By The SEC
The Securities and Exchange Commission (SEC) found evidence that Sepehr Sarshar engaged in insider trading while they were conducting their investigation. This evidence consisted of email correspondence and text messages that demonstrated his awareness of the confidential material. The SEC also revealed that Sepehr Sarshar had discussed the potential transaction with his brother and a friend, allowing them to also profit from the insider information that Sepehr Sarshar had provided. Sarshar was able to benefit from his position as an insider in this regard as well, which was yet another way.
The Apprehension and Its Repercussions
Sarshar was arrested and charged with illegal insider trading as a direct result of the investigation that was carried out by the SEC. The SEC investigation led directly to the arrest of Sarshar. Since that time, he has changed his plea to one of guilt to the claims, and as a consequence, the judge has ordered him to pay over $1.8 million in restitution and penalties.
In addition to this, it is strictly forbidden for Sepehr Sarshar to ever again serve as an officer or director at a publicly traded company or to take part in the purchase or sale of penny stocks under any and all circumstances.
Before the public announcement in March 2015 that Teva Pharmaceutical Industries Ltd. had begun a tender offer to acquire Auspex, the Commission is alleged to have lodged a complaint on August 25, 2020, alleging that Sarshar communicated material nonpublic information to his friends and family and/or caused them to trade prior to the release of this information. According to the allegations made in the complaint, Sarshar became aware in February and March of 2015, thanks to his position on Auspex’s board of directors, that Teva and other pharmaceutical companies were interested in acquiring Auspex, and that Auspex’s board of directors and management were taking active steps to facilitate a sale of the company. The complaint states that Sarshar became aware of this information.
According to the complaint, Sarshar conveyed crucial nonpublic information regarding the highly confidential tender offer process to a large number of friends and family members and prompted them to trade in Auspex stock prior to the release of the tender offer. This caused other Auspex shareholders to suffer financial losses as a result.
The final consent judgment against Sarshar mandates him to pay a civil penalty in the amount of $56,222 and permanently enjoins him from breaching Section 14(e) of the Securities Exchange Act of 1934 and Rule 14e-3 thereunder. Additionally, the judgment requires him to make restitution to the victim.
Megan Ryan of the SEC’s Philadelphia Regional Office was one in charge of conducting the investigation, while Julia C. Green and Scott A. Thompson of the same office served as her supervisors. The litigation on behalf of the SEC was led by Mark R. Sylvester and Jennifer C. Barry. The Securities and Exchange Commission (SEC) would like to express its gratitude to the United States Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority for their help.
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