Four metro Atlantans were indicted this week on charges they used insider information to profit from a corporate buyout announcement involving pharmaceutical maker Chattem Inc., the maker of products such as Icy Hot heat pads and Allegra allergy medicine.
Thomas D. Melvin Jr. of Griffin, C. Roan Berry of Jackson, Michael S. Cain of Griffin and Joel C. Jinks of Griffin are accused of securities fraud in the seven-count indictment filed in the Newnan Division of U.S. District Court. A fifth person, only identified as “Person A,” is also mentioned in the filing.
Insider trading is illegal when an investor buys or sells a stock after being “tipped off” to confidential information provided by insiders within a company - such as top executives or board members.
According to the indictment, Chattanooga-based Chattem entered talks in late 2009 to be acquired by French pharmaceutical maker Sanofi-Aventis for a price above $90 a share.
A Chattem board member discussed the deal with Melvin, his accountant, to get personal tax advice, but instead of keeping the conversation private because it involved confidential insider information, Melvin allegedly shared news of the impending buyout with his clients Berry, Cain, Jinks and Person A.
Melvin and the clients then allegedly purchased Chattem stocks with the expectation the stock would increase in value when the deal with Sanofi-Aventis was announced publicly.
The $1.9 billion deal was announced on Dec. 21, 2009, and Chattem’s shares rose 33 percent to $93.50 on that day. The defendants allegedly had purchased Chattem shares between Dec. 11 and Dec. 15, 2009.
The Atlanta office of the U.S. Securities and Exchange Commission began investigating the insider trading case in August 2012, saying a total of eight people profited more than $500,000 in the case. Four members of the group agreed to pay back more than $175,000 in gains, fines and interest.
If convicted, the remaining defendants would be ordered to forfeit any gains from their investments.
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