DOJ And SEC Charge Biotech Consultant With Insider Trading, But SEC Passes On Seeking Disgorgement
On February 5, 2021, the Securities and Exchange Commission (“SEC”) and the Department of Justice (“DOJ”) charged Mark Ahn, a consultant to a biotech company, with insider trading based on confidential information that he allegedly learned regarding a proposed acquisition of Dimension Therapeutics, Inc. (“Dimension”). In parallel civil and criminal actions, the DOJ and SEC allege that Ahn executed trades prior to the public announcement of Dimension’s acquisition, based on material non-public information (“MNPI”) that he obtained through his role as a consultant. Ahn is facing criminal charges of two counts of securities fraud under 18 USC § 1348 and forfeiture pursuant to 18 USC § 981(a)(1)(C) and 28 USC § 2461(c), along with civil charges of violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 and a permanent injunction, civil monetary penalties, and an officer-and-director bar. Notably, while the DOJ is seeking forfeiture, the SEC is not seeking disgorgement.
According to the DOJ Information and SEC complaint, from 2006 to 2016, Ahn served on the board of directors of a publicly traded biotech company, and in 2017, he resigned from the board and became a paid consultant for the company. The company is identified in the SEC complaint as Abeona Therapeutics, Inc. (“Abeona”). The SEC complaint notes that as a paid consultant, Ahn was subject to confidentiality and nondisclosure obligations, as well as Abeona’s compliance policies. The DOJ and SEC both allege that in 2017, through his role as a paid consultant, Ahn obtained MNPI about Dimension, which Abeona was considering acquiring. Specifically, Ahn allegedly had information about the financial terms of Dimension’s potential sale to Abeona, and he also knew that because there were multiple competitive bidders, Dimension was likely to be acquired. The SEC complaint claims that Ahn acquired approximately $38,891 worth of Dimension stock based on the MNPI that he possessed, and he made nearly $49,000 in profits when he sold the stock after Dimension’s acquisition became public.
While the DOJ seeks forfeiture, and the SEC seeks a permanent injunction, civil monetary penalties, and an officer-and-director bar, the SEC does not seek disgorgement, a notable omission given that the SEC clearly alleges that Ahn personally profited. The SEC’s decision not to seek disgorgement is likely an effect of the Supreme Court’s recent decision in Liu v. SEC, which reined in the SEC’s ability to seek disgorgement in certain cases. In Liu, the Supreme Court held that the SEC can obtain disgorgement as an equitable remedy when the amount does not exceed a wrongdoer’s net profits and is awarded for victims, but suggested that the SEC’s historic practice of seeking broadly all “ill-gotten gain” was unsupportable. Liu v. Sec. & Exch. Comm’n, 140 S. Ct. 1936, 1948 (2020). The SEC’s decision not to seek disgorgement in this case may be in recognition of the fact that disgorgement is an ill-suited remedy in insider trading cases, though the fact that the DOJ is seeking forfeiture and the SEC is seeking a civil penalty may ultimately mean that defendant will benefit minimally from the absence of a disgorgement claim.