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(Updates with details of sentence in second paragraph.)
Sept. 12 (Bloomberg) -- A former Sequenom Inc. patent agent and his brother were sentenced to three years of probation after they pleaded guilty to conspiring to trade stock options in the biotechnology company’s shares using inside information.
U.S. District Judge Barry T. Moskowitz in San Diego today also ordered the patent agent, Aaron Scalia, 35, and Stephen Scalia, 39, to spend four months in a halfway house. Aaron also must pay $185,000 restitution and perform 250 hours of community service, the judge said.
“I don’t think a lengthy term of imprisonment is necessary to get the message across that this is wrong,” Moskowitz said at today’s sentencing hearing. “This wasn’t a typical situation of insider trading in which there was a corporate official acting on insider information in order to be paid for that information.”
Aaron Scalia had regular contact with scientists with access to Sequenom’s confidential data and shared non-public information with his brother Stephen Scalia from 2008 through 2009, according to the details of their guilty pleas in February. U.S. Attorney Laura E. Duffy said in an e-mailed statement announcing the pleas that Stephen Scalia passed the information to other people who bought Sequenom shares and made a profit of more than $600,000.
Last year, the two men who received the tips, Brent A. Cohen and David V. Myers, of Cleveland, pleaded guilty to the same charges, according to court filings. They are scheduled to be sentenced Oct. 3 by Moskowitz. The U.S. Securities and Exchange Commission separately filed a lawsuit against Cohen and Myers, according to the filings.
Assistant U.S. Attorney Eric Beste argued at today’s hearing that the Scalia brothers should get 16-month prison terms.
“This situation does warrant significant punishment,” he said. “There was a profit motive involved and these two individuals recognized that they were doing something that was inappropriate and illegal.”
Michael Lipman, Aaron Scalia’s attorney, said there is almost always an agreement for compensation in these types of cases.
“There is absolutely no evidence in this case that my client got any compensation or expected to get any compensation,” he told the judge.
Frank Vecchione, Stephen Scalia’s lawyer, said “it’s inexplicable, it’s stupid.”
“Two people who are not sophisticated or well versed in securities laws went down a road they did not understand,” he said.
Aaron Scalia admitted passing his first stock tips in 2008 as Sequenom, a San Diego-based company that designs genetic analysis technology and tests, was seeking to acquire Exact Sciences Corp., according to the statement.
According to court documents, Aaron Scalia disclosed material nonpublic information about Sequenom from October 2008 through 2009 to his brother on two occasions, knowing that the inside information would be used to purchase stocks or stock options.
“In both instances Stephen Scalia passed the inside information to his college friend, Brett Cohen, who then tipped off his uncle, David Myers, who actually purchased securities using the inside information for a gross profit of over $600,000,” Duffy said in the statement.
A restitution order against Stephen Scalia is scheduled to be made final on Oct. 3.
The case is U.S. v. Scalia, 11-cr-522, U.S. District Court, Southern District of California (San Diego).
--With assistance from Joel Rosenblatt in San Francisco. Editors: Peter Blumberg, Andrew Dunn
To contact the reporter on this story: Bill Callahan in San Diego at firstname.lastname@example.org.
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