How a GE Acquisition Sparked an Insider Trading Case

The SEC charges are related to GE Healthcare's 2010 acquisition of cancer diagnostics company Clarient.

Chris Newmarker

A father, son, and friend in Northern California have agreed pay the SEC a combined $170,000 to settle charges that they engaged in insider trading around GE Healthcare's $587 million acquisition of Clarient in 2010.

John McEnery III, his son John McEnery IV, and longtime friend Michael Rawitser did not admit or deny the allegations in the SEC's complaint filed in federal court in San Jose, SEC said Wednesday. The settlement is still subject to court approval.

In a way, the case serves as a warning to anyone working at a medical device company acquisition target: be extremely careful whom you tell your good news to.

Back in 2010, the elder McEnery learned of the potential acquisition from a close friend who worked at Aliso Viejo, CA-based Clarient, according to the complaint.

McEnery III and the Clarient insider, a senior director at the time, had dated on and off since the 1990s, and she had even lived with him for a few years. "Given their history, pattern, and practice of sharing confidences, the Clarient insider expected McEnery III to keep the information regarding the Clarient acquisition confidential," the complaint says.

McEnery III broke his friend's trust and confidence by purchasing Clarient stock and encouraging friends and family to do the same. McEnery's son and Rawitser ended up buying Clarient stock, too.

"McEnery IV and Rawitser knew or were reckless in not knowing that the information McEnery III shared with them came from a Clarient insider and that McEnery III had received or misappropriated the confidential information in breach of a duty," the complaint says.

The value of Clarient stock skyrocketed 33% when the GE Healthcare acquisition was announced on October 20, 2010. McEnery III, McEnery IV, and Rawitser profited more than $50,000 on their trades.

"Individuals who obtain confidential information through a relationship of trust with a corporate insider are prohibited from using that information to trade securities," Joseph G. Sansone, acting co-chief of the SEC's Market Abuse Unit, said in a news release. "These traders violated such a trust by using highly-sensitive information to reap illicit trading profits."

Chris Newmarker is senior editor of Qmed and MPMN. Follow him on Twitter at @newmarker.

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