Investment Adviser Sentenced In Manhattan Federal Court For Insider Trading Scheme Involving Pharmaceutical Industry Stocks
Joon H. Kim, the Acting United States Attorney for the Southern District of New York, announced that DAVID HOBSON, a former investment adviser, was sentenced to six months in prison for engaging in a scheme to commit insider trading in connection with deals involving a pharmaceutical company (the “Pharma Company”) at which Michael Maciocio, HOBSON’s friend, client and co-conspirator, worked. HOBSON pled guilty on October 25, 2016, to one count of conspiracy to commit securities fraud and one count of securities fraud before United States District Judge Laura T. Swain, who also imposed today’s sentence.
Acting U.S. Attorney Joon H. Kim said: “David Hobson used his relationship with a childhood friend to obtain inside information, and then traded on that information, making hundreds of thousands of dollars in illegal profits. The securities market must be free and fair for all, and our Office’s commitment to investigating and prosecuting insider trading remains firm.”
According to the allegations contained in the Indictment filed against HOBSON and his co-conspirator and statements made in related court filings and proceedings:
From May 2008 through April 2014, HOBSON and Maciocio participated in a scheme to commit insider trading in advance of, and in connection with, acquisitions and transactions under consideration by the Pharma Company. HOBSON and Maciocio were childhood friends and HOBSON had served as Maciocio’s investment adviser and broker for many years.
Maciocio learned about the impending transactions through his role as a master planner in the Active Pharmaceutical Ingredient Supply Chain Group at the Pharma Company. In that role, Maciocio was tasked with evaluating manufacturing demands and capacity within the Pharma Company and was consulted about potential acquisitions to assist in determining whether the Pharma Company would be able to manufacture any new product in-house. Although Maciocio was not typically provided with the names of the companies targeted for acquisition, he used the inside information he received – including the Pharma Company’s code names for the acquisitions, the drug indications, the dosages, the phases of any clinical trials, and the chemical structure of the drugs – to uncover the true identities of the target companies. At times, HOBSON assisted Maciocio in determining the identities of these target companies based on the inside information Maciocio had obtained as part of his job.
Having learned about these impending transactions, Maciocio, in breach of fiduciary duties and other duties of trust and confidence owed to the Pharma Company, traded on his own behalf and tipped HOBSON, so that HOBSON could use the information to trade for both himself and for Maciocio. HOBSON also used the inside information to trade on behalf of some of his other investment advisory clients.
HOBSON used the inside information that he received from Maciocio to make profitable trades in, among other securities: Medivation, Inc., Ardea Biosciences, Inc., and Furiex Pharmaceuticals, Inc. As a result of the scheme, HOBSON reaped approximately $165,000 in ill-gotten gains for himself, $40,000 for Maciocio, and nearly $150,000 for certain of HOBSON’s other clients.
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In addition to the term of imprisonment, HOBSON, 48, of Providence, Rhode Island, was sentenced to two years of supervised release and was ordered to forfeit $385,664.39.
Maciocio, 47, pled guilty to one count of conspiracy to commit securities fraud, one count of conspiracy to commit wire fraud, and two counts of securities fraud on May 20, 2016. His sentencing has not yet been scheduled.
Mr. Kim praised the work of the Federal Bureau of Investigation, and thanked the U.S. Securities and Exchange Commission.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Aimee Hector and Rebecca Mermelstein are in charge of the prosecution.