New York, NY – According to an article published by the Wall Street Journal this morning, hedge fund SAC Capital Advisors, and Boston-based investment bank Leerink Swann, are both under investigation by the SEC for potential insider-trading violations surrounding Johnson & Johnson’s 2009 acquisition of Cougar Biotechnology, Inc.
The SEC is investigating whether SAC’s CR Intrinsic unit received and traded on inside information about Cougar’s pending takeover. According to SEC filings, SAC owned 7,800 shares of Cougar at the end of 2008 and 632,291 shares of the firm by March 31, 2009. Johnson & Johnson announced its deal to acquire Cougar on May 21, 2009. CR Intrinsic’s investment in Cougar generated approximately $2.5 million in profit.
Besides their investigation into SAC’s investment into Cougar Biotechnology, the SEC is also looking into Duquesne Capital Management and Galleon Group’s trading in Cougar.
In addition, the SEC is looking into whether Leerink Swann’s expert network division, MedaCorp, was involved in possible leaks of material nonpublic information on this deal to various hedge funds, including CR Intrinsic and J. Goldman. CR Intrinsic had been one of MedaCorp’s largest customers.
What is particularly interesting about this investigation, however, is that the potential MNPI might not have originated from one of MedaCorp’s doctors or other healthcare experts, but instead from employees at MedaCorp or Leerink Swann itself. Leerink Swann was Cougar Biotechnology’s financial adviser, and hence had access to information about the Johnson & Johnson deal before it took place.
As a result, if the SEC finds that Leerink Swann passed inside information to CR Intrinsic, or others, it might not have been a result of the firm’s “expert network”. Instead, it could have been an issue of MNPI flowing from the investment bank to their institutional investor clients.
It must be noted that the SEC has been investigating this case for some time and hasn’t accused SAC, Leerink Swann, or J. Goldman of any wrongdoing in the matter.