The case was a bold step for the Securities and Exchange Commission.
In 2021, the agency accused Matthew Panuwat of insider trading. Five years earlier, he had learned that his own company, a biopharma operation called Medivation, was about to get acquired. But instead of buying shares in his employer, he bought options in a competitor whose stock could be expected to rise on the news. The agency says he made $107,000 in illicit profits.
For the first and so far only time, the SEC filed a case that accuses an executive of using secret information from his own company to trade in the stock of a rival. “Biopharmaceutical industry insiders frequently have access to material nonpublic information” that impacts both their company and “other companies in the industry,” Gurbir Grewal, the commission’s director of enforcement, warned in announcing the case. “The SEC is committed to detecting and pursuing illegal trading in all forms.”
One of the cornerstones of the agency’s case against Panuwat is that Medivation had a policy that explicitly barred employees from buying or selling competitors’ stock based on company information not available to ordinary investors.
It wasn’t just Panuwat who risked violating Medivation’s policy, a trove of confidential IRS data obtained in recent years by ProPublica shows.
It was also his then-boss, CEO David Hung.
The records show Hung traded frequently in the stock and options of pharmaceutical companies, betting tens of millions of dollars on the rise or fall of shares of dozens of such firms, some of which were direct competitors with his company. Several of his trades came just before news about a rival that he could have learned about in his position as CEO. In one case, he traded ahead of news he personally announced.
The size of Hung’s trades dwarfs those that got his subordinate, who has denied any wrongdoing, in the crosshairs of the SEC.
Hung’s spokesperson acknowledged the CEO has learned nonpublic information about competitors, but denied that information ever informed any of his dozens of trades.
Earlier this year, ProPublica revealed that some executives with access to nonpublic industry information had made remarkably well-timed transactions in the securities of their direct competitors and partner companies. Securities law experts said many of the trades, which in some instances rapidly delivered millions of dollars in profit, warranted examination by regulators. The transactions ranged across sectors: from energy to toys, paper products to mortgage servicers.
But one industry stood out for both its frequency and variety of questionable trades: biotech and other relatively small health care enterprises such as medical device makers and drug companies. Dozens of wealthy executives and well-connected investors reported superbly timed stock trades in such companies, including in businesses they competed with or had personal ties to.
ProPublica has analyzed millions of transactions documented in the tax records of the wealthiest taxpayers, including many of the nation’s top business leaders. A high proportion of these trades involved plain vanilla investments, with long-term holdings of blue chip stocks and the like. But a minority of the transactions displayed what experts say are hallmarks of potentially suspicious trading.
Finding well-timed trades was only a starting point for ProPublica’s analysis. We then scrutinized transactions that occurred just before market-moving news, particularly those that represented a departure from an investor’s previous investing pattern, because they either had hardly if ever traded a particular company's stock, were trading an unusually high dollar amount or were making use of risky options for the first time. We examined whether those people had any possible nonpublic means of obtaining information about the companies whose stock rose or fell at an opportune moment. We provided anonymized descriptions of these trades to academics, former prosecutors and former SEC officials, and focused on those they said should have garnered the attention of regulators.
Among the notable examples:
The chairman of a biotech company bought shares in a corporate partner just as the partner was reaching the final stages of secret negotiations to be purchased.
The chairman of a bone health company made aggressive bets on a medical technology firm run by an adviser to his board just before its sales took off, netting him $29 million in a series of options trades.
A wealthy investor with ties to a niche area of cancer research personally traded, for the first time ever, in a company in that sector just before it was taken over. He bought high-risk options that earned him a quick $1 million in profit.
An information edge can be lucrative in any industry, but especially so in the health care sector. Many of its companies are built around only one or a handful of products, making their shares particularly volatile and ripe for profit by investors with inside knowledge. Biotechs and other up-and-comers face clear make-or-break moments: Clinical trials, signals from regulators or takeover rumors can cause wild swings in share prices.
Since beginning to report on our massive trove of IRS records in 2021, ProPublica has analyzed the data and used it as the basis for a series of articles, The Secret IRS Files, that reveal the many ways in which the tax code favors the rich and how the ultrawealthy exploit those advantages.
The IRS data also included millions of records of wealthy taxpayers’ stock and options trades, provided by the brokerages that handled the trades. While the SEC routinely reviews stock trading data from brokers and exchanges, the agency does not have access to IRS data, which in many ways is more comprehensive. (A spokesperson for the SEC declined to comment for this article.)
The securities experts said there is no fixed definition of what makes a trade suspicious and worthy of further investigation. A propitious trade for a relatively small amount, for example, might still warrant scrutiny if the investor has a tie to the company. One excellently timed trade is less noteworthy if the investor frequently trades in that security. A trade with a modest return could still be problematic if it came before news the investor knew about in advance or set in motion. And even if a trader’s investment strategy in a stock wasn’t ultimately successful, a single lucrative trade could still be deemed illegal.
The experts interviewed by ProPublica about the trading patterns examined in this story said that while each should trigger closer scrutiny from regulators, the question of whether they would lead to any action would depend on a host of additional factors. They noted that stock trades are generally deemed to violate insider trading laws only when multiple elements are met. The trader must have had information, not yet publicly known, that would affect the company’s share price. And the trader, or the person who provided the tip, must have had a duty not to disclose the information or use it for personal benefit.
ProPublica’s records give no indication as to why investors made particular trades or what information they possessed. The wealthy investors named in this story either denied their trades were improper or did not comment.
The personal trading policy for Medivation, the multibillion-dollar company Hung ran, was particularly explicit. It warned its employees to be careful trading the shares of competitors because Medivation’s employees possess nonpublic information that can affect those companies’ stock prices as well. “For anyone to use such information to gain personal benefit,” the policy stated, “is illegal.”
But ProPublica’s data show Hung, who has led a number of biopharma companies and has been described in the press as a master dealmaker, risked violating the company’s policy by trading in the securities of competitors. During the decade-plus in which Hung led Medivation, most of his proceeds from securities transactions in companies other than his own involved the pharma sector.
With timely trading, he sometimes scored gains of hundreds of thousands of dollars or managed to avoid a calamitous loss. (The records show that he sometimes lost money as well.)
Securities experts with whom we described his trading patterns and high-ranking role (but not his name) said the investments appeared to show a top executive capitalizing on information not available to the average investor.
In July and August 2011, Hung’s tax records show, he sold more than a million dollars’ worth of stock in a company called Dendreon. Dendreon was then producing a promising prostate cancer therapy that Hung’s firm was competing against, working to get their own drug to market. The day after Hung sold the last of his two roughly half-million-dollar tranches of Dendreon stock in August, the company’s share price fell 67% because of poor sales and a lack of initial enthusiasm from doctors about its prostate cancer drug.
Industry experts said that when a pharmaceutical is in late-stage development, as Medivation’s drug was at the time, the company will normally have its representatives examine the competitive landscape, including surveying doctors’ offices about rival drugs. And business-side employees of companies, even competitors, frequently mingle and trade gossip at conferences.
A few months later, in October 2011, Hung again bought shares of Dendreon, but quickly made a U-turn days after, selling those shares off for about $150,000, essentially the same price he had bought them for. A week later, Hung announced that his company had learned that trials had gone so well for its own prostate cancer therapy that the drug was going to start being offered even to participants who had been given a placebo. “These results are both an important step toward making this life-extending potential treatment available to the prostate cancer community and a significant milestone for our company,” Hung said in a press release at the time.
Just as Hung announced his company’s promising results, Dendreon released lackluster quarterly earnings. Its stock fell 37%.
David Nierengarten, an analyst who covered both companies at the time, told ProPublica the earnings report caused most of the fall, but part of it could also be attributed to Medivation’s clinical trial results, which posed a threat to Dendreon’s market share. Hung’s spokesperson said that Hung did not know the outcome of his company’s clinical trials when he sold Dendreon’s shares.
Hung sold Dendreon shares on almost two dozen occasions over six years, with most of the trades for less than $150,000. Hung’s spokesperson denied he had any relevant nonpublic information when he made his Dendreon trades.
In one instance, tax records show Hung traded a competitor’s stock ahead of news he himself disclosed that experts said would likely qualify as material.
On Aug. 24, 2015, Hung announced that Medivation was acquiring a cancer-fighting medication from a company called BioMarin. The drug was one of a handful of cutting-edge new drugs that Hung hailed as an “exciting class of oncology therapeutics.”
What Hung didn’t say was that on the same day his company finalized the acquisition — but three days before the public announcement — he made a purchase in his personal stock trading account. He bought about $8 million in shares of Clovis Oncology, a company that was separately developing a drug in the same treatment category, known as “PARP inhibitors.”
After the acquisition, the pharmaceutical trade press noted that there was growing interest in this class of drugs. Hung’s deal marked the first big acquisition of a PARP inhibitor.
“Obviously all the PARPs are going to pop,” said Nierengarten, the analyst who covered Hung’s company. Clovis is a small company reliant on a small number of drugs, “so it’s really going to pop,” he said.
And it did. In the week after the Medivation agreement was announced, Hung’s stock purchase paid off: The price of Clovis shares increased by about 11%, a rise experts attributed partly to Hung’s drug acquisition.
By the time Hung sold the shares the next month, he netted $1.25 million in profit.
Hung’s spokesperson defended the trades, saying Hung did not believe Medivation’s acquisition of BioMarin’s drug would affect the share price of a company that made a drug in the same class.He also said most of the stock’s rise came in the days after the news of the acquisition, not the day of, which he said indicated Hung’s profit was attributable to other factors.
The Clovis shares that Hung bought represented the final step in what records show was a series of complex transactions involving what are known as stock options — arrangements to buy or sell a security at some future date. In April 2015, Hung started selling Clovis “put options.” That meant he was entering into a contract that gave another investor the right to sell Clovis shares to him in the near future at a specified price. It was essentially a bet by Hung that Clovis shares would remain at roughly the same price or rise (a sophisticated and unusual transaction for a typical retail investor).
In April and May, Hung sold a small number of his contracts. In June and July, he began selling more frequently and in larger quantities: 17 times as many contracts as he had sold in the previous two months. According to his spokesperson, this was around the time Hung was approached to buy BioMarin’s drug.
The expiration dates for the options were staggered. A large group of his contracts expired on the same day he finalized the drug acquisition.
At that moment, Hung had two choices, both seemingly unpleasant. According to his spokesperson, he likely could have paid cash to end the contracts, which would have resulted in an immediate loss since the options were for a higher stock price than Clovis was trading at on that day. The contracts also allowed him to buy the specified number of shares, a seemingly bad deal since he would pay anywhere from $75 to $85 per share for stock that was trading at less than $73.
But on that day, Hung knew something the market didn’t: that his company was about to announce it was buying Biomarin’s drug.
Hung bought about $8 million worth of Clovis shares. After his company’s announcement, Hung was in the black in a matter of days, even after he bought at the inflated price. The option trades had worked out beautifully. He sold the shares the next month, turning that $1.25 million profit.
Hung’s spokesperson pointed out that, taking into account all of the Clovis options he sold that year, Hung actually lost about $100,000. The time horizon for some of the contracts was much longer, with expiration dates into the following year. Hung, he said, held on to some of his contracts and ultimately lost money when the price of Clovis shares declined significantly a few months later. The spokesperson also said that someone trying to capitalize on nonpublic information could do so more efficiently by buying shares in a company rather than through a complicated series of options trades.
ProPublica described Hung’s options dealing in Clovis, without revealing his identity, to Dan Taylor, a professor at the Wharton School and a leading insider-trading expert. “The trades in question seem at best highly unethical and at worst they may be illegal,” Taylor said. “I would caution any and all executives from engaging in the behavior described here. There's significant legal jeopardy if that behavior was brought to the attention of regulators.”
Harry Sloan did not make his name in the health care industry. He came to prominence in Hollywood.
But in 2017 Sloan made a sizable bet on Juno Therapeutics, a Seattle-based biopharma company focused on cancer treatments.
Sloan had never personally invested in Juno before. There’s also no sign in his tax records, which span the years 1999 to 2019, that he purchased options to invest in other companies.
But on Dec. 14 and 15, 2017, he did both for the first time in ProPublica’s tax data. He bought more than a quarter-million dollars of Juno call options, a contract giving him the right to buy the stock at a specific price. The options were “out of the money,” meaning the price was well over what the stock was trading at at the time. The bet would pay off only if Juno stock jumped significantly.
Options, especially out-of-the-money options like the ones Sloan bought, are risky but can carry huge rewards. You can win big if the stock price rises above the purchase price set by the contract. If Amazon stock sells for $125 a share, an option to buy a share at $130 is worthless at the expiration date unless the market price jumps above $130. If Amazon stays at $125, you’ve spent money for nothing. But if it soars to $175 a share, you stand to make a lot from a small investment.
Sloan’s timing proved prescient. The public didn’t know it yet, but December 2017 was a hugely significant moment in Juno’s history. The company had been privately negotiating to sell itself to Celgene, a leader in the field of cancer treatments. On the same days that Sloan bought his options, Celgene significantly raised its offer and Juno agreed to be taken over.
When The Wall Street Journal broke the news of the imminent acquisition a month later, Juno’s share price skyrocketed from $46 a share to $69, its largest one-day increase ever, and Sloan quickly cashed in. He sold much of his first tranche of options for $677,000. In two decades of records, it was the largest sale he’d made in a security of a company where he hadn’t been an insider.
In all, he claimed more than $1.1 million in profit from his Juno trades, a 450% return on the cost of his options.
Of the 251 trading days in 2017, there were only a dozen other days where Sloan could have purchased options and seen the stock’s price increase as much as it ultimately did over the short period he held the bulk of his position.
Through a spokesperson, Sloan, who has been a prominent fundraiser for presidential candidates on both sides of the aisle, declined to answer questions from ProPublica, instead providing a brief statement: “Any insinuation of unethical or improper activity here is false, and contrary to the reputation Mr. Sloan has developed over the course of his lifetime.”
ProPublica provided an anonymized description of Sloan’s trades to a former SEC commissioner, two former SEC attorneys and two leading insider trading academics. All five said this sort of fact pattern could draw scrutiny from regulators because of how well-timed the trades were, and how anomalous compared to Sloan’s trades before and after.
"If you see out-of-the-money call options, no prior history of trading in that name, excellent timing and a large profit, generally yes, I would expect that to draw attention from regulators," former SEC Commissioner Allison Herren Lee said.
A remarkably timed trade may be even more suspicious, she said, if a trader had some sort of personal tie to the niche industry the company is in.
Though much of his career was in Hollywood — Sloan had been an entertainment lawyer and eventually became CEO of Metro-Goldwyn-Mayer — he is not without his connections to biotech and the subsector Juno was in. Sloan knew Arie Belldegrun, one of the leaders in the field of “CAR T-cell” therapy, a novel cancer treatment in which human cells are modified to attack cancer cells. It is the same niche that Juno specialized in. Sloan and Belldegrun were both active in art philanthropy, backing the same Los Angeles art museum at least as far back as 2013; Belldegrun’s wife co-hosted a VIP screening in 2011 for a movie produced by Sloan’s wife. And Sloan donated $3.2 million to Belldegrun’s lab at UCLA in 2017.
Belldegrun was previously CEO of Kite Pharma, a Juno competitor, before selling his company just months before Juno was acquired. Around the time that Sloan was investing in Juno call options, Belldegrun was starting a new CAR-T company. (Four years later, in 2021, Sloan helped take public a biological engineering firm called Ginkgo Bioworks. One of his partners in that venture was Belldegrun.)
There is no evidence that Sloan and Belldegrun ever discussed Juno. Belldegrun did not respond to repeated requests for comment.
Robert Stiller made his fortune off smoking paraphernalia and coffee. He helped launch E-Z Wider, rolling papers used for joints and cigarettes, before founding Green Mountain Coffee Roasters, the multibillion-dollar company that helped popularize K-Cup coffee pods. That role propelled him to business celebrity, as Forbes declared him “entrepreneur of the year” in 2001.
After Stiller left Green Mountain, he served as chairman of the board of AgNovos, a bone health startup. There, the board Stiller led hired a special adviser: Stephen MacMillan, an experienced medical technologies executive. By the end of 2013, MacMillan was named CEO of Hologic, another medical technology company, but he stayed on at AgNovos as a special adviser to Stiller.
Within a few months, Stiller began investing in Hologic for the first time — and aggressively.
On 33 days between March 2014 and January 2015, he bought a total of $9.8 million in call options in MacMillan’s company. Each was a win, netting him a combined $29 million in profit, almost a 300% return. Stiller’s tax records show no indication that he purchased options in companies other than Hologic and Green Mountain from 1999 to 2019.
The rise in Hologic’s share price was driven largely by revenue growth from its innovative line of mammogram devices, which are more effective than standard breast scans because they provide a three-dimensional view that helps reveal smaller tumors before they’ve grown. The company began reporting particularly strong growth from that product line in late April 2014, after Stiller’s first purchases. The excitement around the product grew from there, as the line continued to beat Wall Street’s revenue expectations and more studies affirmed its effectiveness. The company would have noticed orders picking up months before revenue numbers were announced, according to an industry expert who asked not to be named to avoid antagonizing industry contacts.
Stiller began buying call options in early March.
Reached by phone, Stiller said he invested in Hologic because he had confidence in MacMillan, but said MacMillan never shared detailed information about the company’s inner workings with him. “I would ask him, ‘How are things going?’ and he’d say, ‘Good,’” Stiller said. (MacMillan did not respond to requests for comment.)
Stiller said he thought he had purchased options in other companies during that period as well, but couldn’t name examples. He said he might have also bought shares of Hologic in addition to options, though he didn’t know when.
He acknowledged that buying call options in a company run by someone he knew, before it announced good news, “might not look good” and said that in retrospect he might have refrained. “I always have acted under the highest ethical shit, and I understand insider trading, and I would never do it, and I would never ask anybody else to do it,” Stiller said. “It’s just not in my DNA.”
Even by Stiller’s account of his discussions with MacMillan, his trades risked running afoul of the law. ProPublica described Stiller’s trades, without identifying him, to Chip Loewenson, a longtime white-collar defense attorney who has handled insider trading cases.
“What you described sounds like it could be insider trading,” Loewenson said. “Even if you take his word for it, that all he asked is how it’s going, and he says it’s going well, that could be material nonpublic information.” As Loewenson described it, a one-word answer about how a company is faring could be polite chitchat — or it could carry meaning. “Is that something a reasonable investor would want to know? If you think you're getting an honest answer, yes.”
In 2018, Jim Mullen, a veteran biopharma executive who previously was CEO of biotech powerhouse Biogen and chairman of the Biotechnology Innovation Organization, became chairman of the board of Editas Medicine, a firm based in Cambridge, Massachusetts, that uses gene editing techniques to treat rare diseases. (Mullen stepped down earlier this month after his term ended.) The publicly traded company collaborates with Celgene to use its technology to develop cancer therapies.
Mullen’s tax records show he had unsuccessfully traded in and out of Celgene before in relatively small amounts, but on Dec. 18, 2018, he made his biggest purchase ever of the company’s shares: $73,000 worth, almost as much as all his other past purchases combined.
His timing was excellent.
Celgene was at the time in secret negotiations to be acquired by pharma giant Bristol Myers Squibb. The day before Mullen bought the shares, Celgene had expanded the circle of people who knew about the takeover talks. According to subsequent SEC filings, Celgene informed an unidentified pharma company about the potential acquisition in hopes of soliciting a higher competing bid. The action also raised the risk that the secret talks might leak. (The company that was approached, which would have had to be orders of magnitude bigger than Editas to consider buying Celgene, declined to make a competing offer.)
The next day — the same day Mullen bought shares in Celgene — Celgene’s executive committee decided to move forward with Bristol Myers.
Two weeks after Mullen’s purchase, the deal was announced, sending Celgene’s shares soaring, and ultimately earning Mullen $46,000 in profit and a return of more than 60%.
Mullen and Editas did not respond to requests for comment.
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Paul Kiel and Jeff Ernsthausen contributed reporting, and Doris Burke contributed research.
