The U.S. Securities and Exchange Commission announced this week that Jay Y. Fung, a Florida man accused of insider trading, has agreed to repay over $700K in illegal profits plus over $60K in interest that he made after he bought stock and call options in Pharmasset Inc. prior to its acquisition by Gilead Sciences. Fung made the trades after a friend tipped him about the pending deal.
In addition to buying shares of Pharmasset, he passed the insider tip onto his business partner who bought options, too. That individual has not been charged nor has he been accused of knowing that the information that Fung gave him was non-public and privileged.
Fung has since pled guilty in a parallel criminal case accusing him of conspiracy to commit conspiracy fraud. He could be facing up to five years in prison. His cooperation with authorities, however, will likely lessen his time under his plea deal.
According to the regulator, following the acquisition, Pharmasset’s stock went up 84%. Fung allegedly paid kickbacks to Kevin Dowd, who is the one who tipped him, for the nonpublic information. Dowd also was charged by the SEC. He found out about the pending acquisition while he worked at an investment advisory firm where a board member for Pharmassett kept an account. The board member sought financial advice prior to the deal. Following a meeting, Dowd and others at the brokerage firm were told that they could not trade or recommend Pharmasset securities because of the inside information to which they’d been privy.
Dowd, who cooperated with the SEC’s probe, consented to repay the cash kickback he got from Fung, which was a $35,000 check (and a jet ski dock). He entered a guilty plea to criminal charges in a parallel case against him. Dowd also consented to be barred from penny stock offerings and the securities industry.