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Two Plead Guilty to Insider Trading

A former employee of Sequenom Inc., a San Diego biotech firm, and his brother pleaded guilty Feb. 15 in U.S. District Court in San Diego to conspiring to commit securities fraud, according to a press statement from U.S. Attorney Laura Duffy.

In his guilty plea, patent agent Aaron Scalia said he disclosed material nonpublic information about Sequenom to his brother on two occasions. The brother, Stephen Scalia of Baltimore, passed along the inside information about the company to his college friend, Brett Cohen, who then tipped off Cohen’s uncle, David Myers. Myers then purchased securities that were eventually sold for a gross profit of more than $600,000, federal prosecutors said.

In the first incident in October and November of 2008, Aaron Scalia passed along news that Sequenom was considering buying another biotech firm, Exact Sciences. In that incident, Myers purchased some $20,000 worth of stock in Exact, according to the U.S. attorney’s office.

After Sequenom announced the acquisition of Exact in January 2009, Exact shares surged 50 percent, and Myers reaped about a $34,000 in profit, according to court documents.

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In April 2009, Aaron Scalia, suspecting problems with Sequenom’s genetic screening test for Down syndrome, alerted his brother, who in turn passed the inside information to Cohen and Myers so that Myers could purchase Sequenom securities, the U.S. attorney’s office said.

On April 29, federal prosecutors said, Myers purchased $40,000 of put options that would increase in value if Sequenom’s share price declined. That day, the company released news of “employee mishandling of R&D test data and results,” which rendered previous released results on the screening test unreliable.

At the close of trading April 30, Sequenom’s stock price plummeted by more than 70 percent from the prior day’s closing price. When Myers sold his put options, he realized a gain of $612,000, federal prosecutors said.

In December, Myers and Cohen pleaded guilty to conspiracy to commit securities fraud, and are scheduled to appear in court May 13.

— Mike Allen

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