Acting Manhattan U.S. Attorney Announces Securities And Wire Fraud Charges Against Founder And Former CEO Of Pharmaceutical Company
Audrey Strauss, the Acting United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today that SEPEHR SARSHAR was charged this morning with securities fraud and other fraud offenses in connection with SARSHAR’s scheme to provide inside information to his friends and family so they could trade in the securities of a pharmaceutical company SARSHAR founded and of which he was a member of the board of directors.
Acting Manhattan U.S. Attorney Audrey Strauss said: “As alleged, Sepehr Sarshar, aware of an impending tender offer for his company, tipped off friends and a close relative, enabling them to reap nearly three-quarters of a million dollars in illegal profits. My Office and the FBI remain resolute in our commitment to policing and prosecuting insider trading.”
FBI Assistant Director William F. Sweeney Jr. said: “It seems intuitive that material nonpublic information should never be shared with the public, or traded on, prior to shareholder knowledge. Still, time and time again we see where those privy to a company’s inside information pass it on to family and friends. As alleged today, Sepehr Sarshar, a founder and board member of Auspex Pharmaceuticals, Inc., tipped off his own inner circle to an anticipated tender offer for the company. His associates traded on this information, and profited by the hundreds of thousands. Upsetting the market balance in this way puts all investors at a disadvantage. I think the message here is pretty clear – insider trading is risky business, and it’s a crime that’s typically met with hefty fines or significant jail time.”
According to the Complaint unsealed today Manhattan federal court:
Between in or about January 2015 and March 2015, SARSHAR, a founder, former chief executive officer, and member of the board of directors of Auspex Pharmaceuticals, Inc. (“Auspex”), misappropriated material nonpublic information (“MNPI”) from Auspex relating to an anticipated tender offer for Auspex by Teva Pharmaceutical Industries Ltd. (“Teva”). SARSHAR passed that MNPI on to friends and family – including a college friend, his then girlfriend, another long-time friend, and a close family relative (collectively, the “Associates”) – so they could execute profitable securities trades based on that MNPI, and otherwise caused the Associates to execute trades based on the MNPI he misappropriated. In turn, the Associates’ trading in the shares of Auspex generated an aggregate of more than approximately $700,000 in illicit profits.
To conceal his illegal scheme, SARSHAR later lied to the Financial Industry Regulatory Authority (“FINRA”) in an investigation conducted by FINRA into insider trading in Auspex securities during the period preceding Teva’s tender offer for Auspex. Among other things, SARSHAR falsely stated that he could recall no contact with two of the Associates during the period preceding the tender offer whereas, in truth and in fact, SARSHAR had substantial communications with those individuals, including regarding the forthcoming tender offer.
SARSHAR will be presented later today in federal court in San Diego.
* * *
SARSHAR, 53, of Encinitas, California, is charged with one count of securities fraud, one count of wire fraud, and one count of fraud in connection with a tender offer. The securities fraud count carries a maximum sentence of 25 years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense. The wire fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense. The fraud in connection with a tender offer count carries a maximum sentence of 20 years in prison and a maximum fine of $5 million. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Ms. Strauss praised the investigative work of the FBI and thanked the Philadelphia Regional Office of the SEC, which has filed civil charges against SARSHAR in a separate action. She added that the FBI’s investigation is ongoing.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Elisha J. Kobre and Martin Bell are in charge of the prosecution.
The allegations contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
 As the introductory phrase signifies, the entirety of the text of the Complaint and the description of the Complaint set forth herein constitute only allegations and every fact described should be treated as an allegation.