WASHINGTON – The former vice president of Gaithersburg-based MedImmune pleaded guilty Friday to one count each of securities fraud and perjury, admitting that he engaged in insider trading then lied to investigators.
Federal prosecutors in Baltimore and Washington said Eric I. Tsao, 44, of Gaithersburg, made more than $164,000 from insider trading on deals between MedImmune, ImClone and others.
Tsao set up an online brokerage account under his parents’ name, funded it with his own money and made stock trades based on “material, non-public, confidential” information gained from his position, said Thomas DiBiagio, U.S. Attorney for Maryland. When confronted, he tried to tell the Securities and Exchange Commission that his wife made the deals.
“In short, he cheated to make money that he didn’t deserve, and then he lied,” said Kenneth Wainstein, U.S. Attorney for the District of Columbia.
Prosecutors recommended that Tsao serve a prison sentence of 15 to 21 months when U.S. District Judge Henry H. Kennedy Jr. imposes sentence Jan. 14. Tsao could also be ordered to pay a fine of up to $1 million for the fraud charge and $250,000 for perjury.
The SEC has also entered a civil judgment that requires Tsao to repay his illicit profits, as well as $330,275 in penalties, and bars him from serving as an officer or director of any public company.
The charges stem from three separate incidents involving MedImmune’s business dealings with other biologics and pharmaceutical companies.
Tsao was a vice president at MedImmune in late 1998 when he opened an online trading account with Charles Schwab & Co. in the name of his father, Jen-Chieh Tsao, 70, a retired sea captain who lives in Taiwan. But the account used the younger Tsao’s Gaithersburg address and his MedImmune e-mail account.
Charging documents said Tsao used the account to purchase 6,000 shares of U.S. Bioscience stock in September 1999, after learning that MedImmune was going to acquire the company. He sold the stock eight days after the merger was announced, making $18,000.
In December 2000, Tsao bought 2,000 shares each of MedImmune and ImClone after learning that the companies were negotiating a deal to manufacture ImClone’s anti-cancer drug. The deal fell through, but Tsao eventually made $50,475 from the ImClone stock — profits that prosecutors said Friday were not illicit.
The SEC became suspicious of Tsao while investigating trades surrounding the company’s acquisition of Aviron, maker of the FluMist vaccine, said Paul R. Berger, the SEC’s associate director of enforcement. In that deal, Tsao bought 10,000 shares of Aviron in November 2001 and later sold them for a profit of $146,132.
Tsao was charged with perjury after he told an SEC panel on October 2002 that his wife placed the U.S. Bioscience trade from his office computer, Wainstein said. The FBI later determined that his wife could not have been at the computer when the trade was made, agency officials said.
Though Berger said the Aviron trade triggered the investigation, Tsao was only charged criminally in connection with the U.S. Bioscience deal.
Berger defended the case, noting that the commission has brought cases for $90 in the past.
“People can’t fly under the radar, because the radar picks up everything,” he said.
-30- CNS 09-17-04