SEC Charges Kevin Dowd of Boca Raton in Pharmasset Stock Tip
Financial advisor Kevin Dowd allegedly gave a penny stock promoter an illegal tip about on a pending acquisition of Princeton, N.J.-based Pharmasset Inc. by California-based Gilead Sciences, according to SEC charges. Dowd allegedly received $35,000 and a jet ski dock from the tipee in exchange for the information.
The SEC alleges that Kevin L. Dowd got details about the Pharmasset Inc. acquisition from one of his supervisors at the brokerage firm where he worked. The supervisor learned about the deal from a customer who sat on Pharmasset’s board of directors.
Dowd, who knew the customer, breached his duty to keep the information confidential by tipping a friend in the penny stock promotion business who bought Pharmasset stock on the last trading day before the public announcement of the deal. The trader also tipped another individual who bought Pharmasset call options, and collectively they made $708,327 in illicit insider trading profits in just two trading days. The SEC’s investigation is continuing.
“As an industry professional, Dowd surely knew what he was doing was wrong, but he incorrectly thought that his scheme was clever enough to avoid detection by investigators,” said Daniel M. Hawke, Chief of the SEC Enforcement Division’s Market Abuse Unit. “Professionals in the securities industry or any sector should know that you’ll be held accountable for violating insider trading laws, even if you don’t trade the securities yourself.”
In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today announced criminal charges against Dowd.
According to the SEC’s complaint filed in federal court in New Jersey, the Pharmasset director told Dowd’s supervisor in confidence as his financial adviser that Pharmasset was going to be sold and the price would be in the high $130s per share. Dowd’s supervisor provided Dowd with the information along with an instruction that he was restricted from trading or recommending Pharmasset securities. Despite the warning, Dowd tipped his penny stock promoter friend, who wired $196,000 into a brokerage account with a zero balance and bought 2,700 shares of Pharmasset stock on Friday, Nov. 18, 2011. Dowd’s friend tipped another individual who bought 100 out-of-the-money call options, which are securities that derive their value from the underlying common stock of the issuer and give the purchaser the right to buy the underlying stock at a specific price within a specified time period. Investors typically purchase call options when they believe the value of the underlying securities is going up.
According to the SEC’s complaint, Gilead and Pharmasset announced the acquisition on Monday, November 21. Dowd’s tippees immediately sold all of their Pharmasset securities to obtain their illegal profits.
The SEC alleges that Dowd violated Sections 10(b) and (14)(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. The SEC is seeking disgorgement of ill-gotten gains with prejudgment interest, a financial penalty, and a permanent injunction against Dowd.
Fort Lauderdale Securities Litigation and Arbitration Attorney
Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.