California Man Sentenced to 18 Months in Prison for Insider Trading in Seattle Genetics Stock
Brother of Former Employee with Advanced Knowledge of Clinical Trial Results Profited from Illegal Trades
|U.S. Attorney’s Office October 07, 2011|
ZISHEN FAN, 38, of Chino Hills, California, was sentenced today in U.S. District Court in Seattle to 18 months in prison, and three years of supervised release for securities fraud. FAN was arrested in April 2011, after being charged with insider trading of Seattle Genetics stock. FAN’s brother, Zizhong Fan, a.k.a. “James,” of Mill Creek, Washington, took his own life in Newark, New Jersey, after being informed of the warrant out for his arrest. James Fan was manager of clinical programming at Seattle Genetics in 2010, during a time when the company was preparing non-public information about its drug being developed to treat Hodgkin’s lymphoma. In the plea agreement, signed in July 2011, ZISHEN FAN admitted his brother James Fan provided him with material, non-public information so that he could purchase stock options and stock in Seattle Genetics before word of the successful clinical trials drove up the stock price. At sentencing Chief U.S. District Judge Marsha J. Pechman said that we require “faith in our financial system for it to work,” and “for every person who gets away [with insider trading]…the public loses its confidence.”
Records filed in the case reveal that during a time period when employees of Seattle Genetics were prohibited from purchasing stock in the company, the FAN brothers purchased more than half-a-million-dollars worth of stock or stock options in Seattle Genetics. The men used a brokerage account in the name of their father, but bank and Internet records indicate that money used for the investments came from the brothers, and the trades were executed by ZISHEN FAN. After Seattle Genetics announced the successful outcome of their clinical trial on September 27, 2010, FAN began to sell and exercise the options and stocks for a substantial profit.
The suspicious volume and trading patterns in the account resulted in an alert to the Securities and Exchange Commission (SEC). In January 2011, the SEC contacted separately the two Fan brothers who denied knowing each other. After the SEC contacts, the Fan brothers attempted to move some of their profit to a bank in China. The SEC has filed suit against ZISHEN FAN and froze the remaining assets in the father’s brokerage account.
Prosecutors asked for a significant prison sentence writing to the court that “Insider trading is a pernicious crime that damages the markets in general and small investors in particular; and victimizes the individual company and its shareholders who are exploited by the offender. At base, the well functioning of the country’s capital market system depends upon the public’s expectation of a level playing field. Mr. Fan’s crime undermines that faith and contributes to a sense in small investors that the game is rigged against them.” The case was investigated by the FBI. The case was prosecuted by Assistant United States Attorney Katheryn Kim Frierson.