The Securities and Exchange Commission today charged a Massachusetts-based biotech company and its former CEO with defrauding investors by failing to report his sales of company stock.
The federal securities laws require certain corporate executives to report their transactions in the company’s stock in order to give investors the opportunity to evaluate whether the purchases and sales by an insider could be indicative of the prospects of the company. An SEC investigation found that after Gary H. Rabin became CEO, CFO, and chairman of Advanced Cell Technology (ACT) in 2010, he repeatedly failed to report his sales of company stock for the next few years. Subsequently, ACT’s annual reports and proxy statements during that period were inaccurate because they failed to report that Rabin was not complying with his obligation to disclose his substantial sales of ACT stock.
ACT and Rabin agreed to settle the SEC’s charges.
“It’s not merely a technical lapse when executives fail to report their transactions in company stock, because investors are consequently denied important and timely information about how an insider is potentially viewing the company’s future prospects,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office. “Instead of reporting his numerous company stock sales within two days as typically required, Rabin waited more than two years and compromised Advanced Cell Technology’s financial reporting obligations.”
According to the SEC’s order instituting a settled administrative proceeding, Section 16(a) of the Securities Exchange Act and underlying SEC rules require officers and directors of a company with a registered class of equity securities to file reports of their securities holdings and transactions. The Sarbanes-Oxley Act of 2002 and additional SEC regulations accelerated the reporting deadline for most insider transactions to two business days and mandated that all reports be filed electronically with the SEC to facilitate rapid dissemination to the public.
The SEC’s order finds that Rabin’s sales would have been viewed by a reasonable investor as significantly altering the total mix of available information about ACT given his executive position as well as the size and frequency of his sales of the company’s stock. However, it wasn’t until May 2013 that Rabin eventually reported his 27 sales of $1.5 million worth of ACT stock from 2010 to 2012. ACT and Rabin violated the anti-fraud provisions of the securities laws by failing to file reports of these transactions and holdings in a timely and accurate manner. Rabin signed and ACT filed annual reports and proxy statements during this period that were false and misleading due to Rabin’s missing Section 16(a) reports.
Rabin, who lives in Santa Monica, Calif., and left the company earlier this year, agreed to settle the SEC’s charges by paying a $175,000 penalty. ACT agreed to pay a $375,000 penalty and retain an independent consultant to conduct a review of its Section 16(a) reporting and compliance procedures. They neither admitted nor denied the SEC’s findings while consenting to orders that charge ACT with violations of Sections 17(a)(2) of the Securities Act of 1933 and Sections 13(a) and 14(a) of the Exchange Act as well as Rules 12b-20, 13a-1, and 14a-9, and charge Rabin with violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 14(a) and 16(a) of the Exchange Act as well as Rules 14a 9 and 16a-3. Rabin also is charged with causing ACT’s violations of Exchange Act Section 13(a) as well as Rules 12b-20 and 13a-1.
The SEC’s investigation was conducted by Leslie A. Hakala and C. Dabney O’Riordan in the Los Angeles office.