SEC Says Inside Traders Used ‘Wall Street’ Code

(CN) - The Securities and Exchange Commission says it unraveled a $600,000 insider trading case involving a man and his uncle, and that one of the men tried to cloak his trading communications through veiled reference to the movie "Wall Street."

The SEC claims Baltimore business consultant Brent Cohen received tips on biotechnology company Sequenom through coded e-mails he exchanged with his fraternity brother, who learned the information from his own brother, a San Diego-based Sequenom patent agent. The SEC did not reveal the names of the patent agent or the agent's brother in the complaint filed in California federal court.

Cohen used pay phones to relay the information to his uncle, David Myers, who made more than $600,000 trading on the stock, the SEC claims.

The unnamed patent agent who worked for Sequenom had prior knowledge that his company had offered to acquire Exact Sciences (EXAS) last year, and that Sequenom's much-hyped Down syndrome screening test had not performed as well as publicly reported, according to the complaint filed in California federal court.

When the patent agent learned that data would affect the launch of the Down syndrome test, he alerted his brother, who in turn tipped off his fraternity brother, Cohen, the SEC claims.

The complaint shows how the parties discussed the information through e-mails that referenced the movie "Wall Street."

"Any word related to Blu H@rsesh0e?" the agent's brother asked Cohen. "La Jolla says the times are ripe."

Investigators decoded the message, which references the patent agent, who worked in La Jolla, Calif. In the 1987 Oliver Stone film, "Blue Horseshoe loves Anacot Steel" is a coded phrase used for insider trading.

After several weeks of communication between the four parties, Myers bought 35,000 EXAS security shares before and after its acquisition by Sequenom, according to the complaint.

The SEC says Sequenom announced that investors could no longer rely on previously disclosed data related to its Down syndrome test, and shares in the company dropped more than 75 percent in one day.

Myers, who knew about the announcement before it was made public, bought risky put options and sold his entire position the next morning, according to the complaint.

The SEC says its investigation is ongoing.

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