Insider trading: $600,000 in profits on San Diego biotech stock no fraternity prank

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Two men pleaded guilty Wednesday to participating in an elaborate insider-trading scheme involving a San Diego-based biotech company that helped them generate more than $600,000 in profits.

Brett A. Cohen of Baltimore and his uncle, David V. Myers of Cleveland, pleaded guilty in federal court in San Diego to a single count of conspiracy to commit insider trading.

They had been accused of using a patent agent at Sequenom Inc. to get nonpublic information in 2009 that the company was about to disclose devastating news about one of its products, prosecutors alleged.

In a civil lawsuit, the Securities and Exchange Commission also accused the men of using the same inside connection to get advance notice of a planned acquisition, which they allegedly used to make another profitable trade.

In an effort to avoid detection, the two men used e-mails coded with phrases from the 1987 film, “Wall Street,” discussed the trades on outdoor pay telephones and used cash to pay off their inside source, prosecutors said.

The unnamed Sequenom employee allegedly told Cohen in April 2009 that that the company was about to announce that its test to detect Down syndrome may not have been as effective as it had previously said.

Cohen then called Myers, who used a put option to generate more than $600,000 in profit when the news caused the company’s stock price to plunge, prosecutors said.

According to authorities, the Sequenom employee first gave the information to his brother, who then shared it with Cohen, a former classmate and fraternity brother at the University of Pennsylvania’s Wharton School.

After Myers collected his profit, he made cash payments to the inside employee, prosecutors said. The employee and his brother have not been charged, but investigations are continuing, authorities said.

Cohen and Myers are scheduled to be sentenced on Feb. 18.

-- Stuart Pfeifer