SEC Charges Former Drug Manufacturer Executive with Unlawful
Insider Trading in Connection with Scheme to Conceal Quality Control
Deficiencies
FOR IMMEDIATE RELEASE
2007-36
Washington, D.C., March 8, 2007 - The U.S. Securities and
Exchange Commission today simultaneously filed and settled civil
charges against Shashikant C. Shah, formerly Vice President of
Quality Control, Quality Assurance and Regulatory Affairs of
now-defunct generic drug manufacturer Able Laboratories, Inc.,
alleging that during a 16-month period, Shah reaped $909,000 in
profits by selling Able's common stock while possessing material,
non-public information about Able's faulty quality control testing
practices. Before halting operations in May 2005 after an internal
review uncovered such testing improprieties, Able developed,
manufactured and sold at least 40 generic drugs including numerous
antibiotic, analgesic and antipsychotic medications.
Linda Chatman Thomsen, Director of the SEC's Division of
Enforcement, said, "Today's parallel actions demonstrate the type of
successful outcome that results from meaningful, cooperative efforts
between regulatory and law enforcement authorities, in this instance
including the SEC, FDA, FBI, U.S. Postal Inspection Service, and
Department of Justice."
Cheryl Scarboro, SEC Associate Director, said, "This insider
trading scheme presents particularly pernicious facts, because the
non-public information Shah profited from was of critical importance
not only to shareholders, but also to everyone who entrusted their
health to Able by purchasing the company's drugs."
Without admitting or denying the allegations in the complaint,
Shah consented to the entry of a final judgment permanently
enjoining him from violating the antifraud provisions of the federal
securities laws and prohibiting him from serving as an officer or
director of any publicly traded company for five years. Shah also
agreed to pay disgorgement of his ill-gotten gains, prejudgment
interest thereon and a civil penalty, in amounts to be determined by
the court.
The Commission's complaint, filed in New Jersey Federal District
Court, alleges that on eight separate occasions from August 2003
through December 2004, Shah acquired Able common stock by exercising
employee stock options and then sold the securities either
immediately thereafter or within a few days, for overall profits of
$909,000. According to the complaint, at the time he engaged in
these transactions, Shah was aware that Able was concealing from the
U.S. Food and Drug Administration (FDA) problems with the quality
control testing of Able products that resulted in the public release
of drugs failing to meet established quality control standards. In
May 2005, Able's common stock price fell more than $18 per share, or
75%, in one trading day, after Able discovered faulty testing
practices of the type Shah had known about, and the company
suspended all product shipments. Able's stock price continued to
fall in the ensuing months, and the company eventually declared
bankruptcy in July 2005, selling substantially all of its assets
five months later.
Also on March 8, 2007, in a related criminal action filed by the
United States Attorney's Office for the District of New Jersey, Shah
pleaded guilty to one count of conspiracy to commit securities fraud
and to distribute misbranded and adulterated drugs. Three former
supervisory chemists under Shah, Jose Concepcion, Ashish Macwan and
Jyotin Parikh, also pleaded guilty to separate criminal informations
charging each with one count of conspiracy to distribute misbranded
and adulterated drug products. Shah and the three chemists each face
a maximum of five years in federal prison and a $250,000 fine. The
issue of restitution will be determined by the sentencing court.
The staff acknowledges the assistance and cooperation of the
United States Attorney's Office for the District of New Jersey, the
United States Postal Inspection Service, the Federal Bureau of
Investigation and the FDA in the investigation of this matter.
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For more information, contact:
John Reed Stark
Chief, Office of Internet Enforcement
U.S. Securities and Exchange Commission
(202) 551-4892
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