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Sequenom Insider Trading Case Describes a Nest of Leaks and Incompetence

Two people have been accused by the SEC of insider trading in Sequenom (SQNM) stock, bringing the number of people accused of investing illegally on confidential knowledge of that company to three. The action confirms that Sequenom's previous management was a nest of leaks and incompetence.

The SEC complaint also gives a little more detail on the mysterious events at the company in 2009 when the company discovered that the data on its non-invasive prenatal Down Sydrome test was corrupted and would have to be junked. Sequenom has never fully explained what went wrong with its testing, even though the fiasco led to the ouster of the company's CEO, CFO, R&D chief, vp/commercial development and three other executives. If Sequenom can ever get the test to market, it will be a blockbuster -- virtually every pregnant woman would want to know if her fetus was disabled from a simple blood test. In the meantime, the company 's history is virtual checklist of bad pharma management practices.

In the current case, an unnamed patent agent inside Sequenom, "Tipper A," allegedly told his brother that the company was doing due diligence on Exact Sciences, which Sequenom failed to acquire in January 2009. Separately, Tipper A also told his brother that something had gone wrong with the Down Syndrome test development program the day before the company announced the problem. The brother allegedly communicated both those pieces of information to two friends -- using a code they stole from the movie Wall Street! -- who traded Exact and Sequenom stock around the events, gaining $600,000.

The complaint shows that knowledge of the Down Syndrome test disaster must have been widespread within Sequenom:

Tipper A was the patent agent working on the Down Syndrome Test. On Monday, April 27, 2009, Tipper A was directed by Sequenom's general counsel to collect and account for all of the Scientists' lab notebooks.
When the Scientists were put on administrative leave, Sequenom disabled the Scientists' e-mail accounts, and as a result, an error message was generated in response to any e-mail sent to the Scientists' e-mail accounts.
On April 28, 2009, Tipper A had additional conversations with Sequenom's general counsel, as well as the vice president of quality control and regulation regarding the lab notebooks.
The stuff about the science staff being kicked out explains why Sequenom's class action stockholder settlement in January leaned so heavily on reforming the science management's oversight within the company.

But the suit doesn't wrap up the loose ends regarding former R&D chief Elizabeth Dragon or former vp commercial development Steven Owings. Dragon is currently cooperating with the SEC in securities fraud probe of the company, after pleading guilty to misleading stockholders. Owings has been accused in a civil suit of dumping $365,967 shares of SQNM a month before the data corruption announcement. That suit is ongoing. And former CFO Paul Hawran is suing the new management for defamation. Clearly, there's a lot more to come ...

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