SEC Alert: Insider Trading – Physicians’ Rx for Wealth?
The SEC alleges that Apparao Mukkamala learned confidential information from board meetings and other communications about the anticipated acquisition of American Physicians Capital Inc. (ACAP) by another insurance company. Mukkamala in turn shared the nonpublic information with fellow physicians and friends Suresh Anne, Jitendra Prasad Katneni and Rao A.K. Yalamanchili as well as his brother-in-law Mallikarjunarao Anne. The five physicians each purchased ACAP stock based on confidential information about the impending sale in the months leading up to a public announcement. Collectively, they made more than $623,000 in illegal profits on their ACAP stock following the announcement.
The physicians agreed to pay a combined total of more than $1.9 million to settle the SEC’s charges.
“These physicians made numerous purchases of ACAP shares that were detected as highly unusual when compared to their past trading patterns,” said Robert J. Burson, Senior Associate Regional Director of the SEC’s Chicago office. “Board chairmen and other insiders should never choose greed over duty when possessing confidential information about the companies they serve.”
According to the SEC’s complaint filed in U.S. District Court for the Eastern District of Michigan’s Southern Division (see: http://sec.gov/litigation/complaints/2012/comp-pr2012-132.pdf), Mukkamala is a resident of Grand Blanc, Mich., and served as a member of ACAP’s board since its formation in July 2000. He became its chairman in May 2007. At a meeting on March 12, 2010, ACAP’s board confidentially discussed whether it should consider a potential sale of ACAP and instructed company management to evaluate whether or not to continue as an independent, stand-alone company.
The SEC alleges that as ACAP’s board and management continued undertaking definite steps toward a sale, Mukkamala routinely disclosed material nonpublic information along the way to the other four physicians. Between April 30 and July 7, 2010, they illegally purchased nearly $2.2 million of ACAP stock based on the confidential information that Mukkamala shared. Mukkamala himself made a trade in the trading account of Chinmaya Mission West, a charitable organization for which he was then serving as president. On July 8, the acquisition of ACAP by Napa, Calif.-based insurer The Doctors Company was publicly announced, and ACAP shares closed approximately 28 percent higher than the previous day’s closing price.
Without admitting or denying the allegations in the SEC’s complaint, the five physicians consented to the entry of final judgments ordering them to pay disgorgement, prejudgment interest, and financial penalties, and permanently enjoining them from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Mukkamala further agreed to be barred from acting as an officer or director of a public company.
Specifically, Mukkamala agreed to pay approximately $631,000. Mallikarjunarao Anne, a resident of Chicago, agreed to pay approximately $253,000. Suresh Anne, a resident of Grand Blanc, Mich., agreed to pay approximately $697,000. Katneni, a resident of Fenton, Mich., agreed to pay approximately $22,000. Yalamanchili, a resident of Staten Island, N.Y., agreed to pay approximately $298,000. The proposed settlement is subject to court approval.
This matter reminds me of the proverb: “Physician, heal thyself.”