If you're going to sell millions of dollars in stock right after learning your company's vaccine batches are contaminated, at least have the decency to be subtle about it. Former Emergent BioSolutions Inc. (EBS) CEO Robert G. Kramer apparently didn't get that memo.
On Thursday, New York Attorney General Letitia James filed a lawsuit against Kramer for insider trading, alleging he used nonpublic information about manufacturing disasters to dump stock before investors figured out what was happening. The state also announced a separate settlement with Emergent itself over the company's approval of Kramer's trading plan.
The Settlement Details
Emergent agreed to pay $900,000 in penalties to New York and committed to beefing up its executive stock-trading controls and policies. That's the corporate equivalent of promising to do better next time.
Here's how the story unfolded: In summer 2020, Emergent signed two manufacturing contracts with AstraZeneca PLC (AZN) worth a combined $261 million to produce COVID-19 vaccines at scale. Investors loved it. After the deal announcements, Emergent's stock rocketed 43.6%, climbing from $94.99 to $136.49 according to the state's figures.
When Things Went Wrong
Then reality set in. The lawsuit alleges that problems surfaced in September and early October 2020 when Emergent discovered contamination issues affecting vaccine batches at its production facility. On October 6, 2020, an executive presented Kramer with a deck that detailed aborted batches and contamination problems. By October 13, 2020, Emergent had concluded the contamination could destroy multiple batches.
The very next day, according to the lawsuit, Kramer reached out to an adviser to establish a scheduled stock-sale plan. Convenient timing, right?
The Trading Plan Controversy
Corporate executives often rely on Rule 10b5-1 plans to sell stock through prearranged trades, which theoretically insulates them from accusations of trading on inside information. But here's the catch: the state argues that the rule doesn't protect trades when the plan itself was set up using material nonpublic information.
Emergent approved Kramer's trading plan on November 13, 2020, the lawsuit alleges. Kramer then executed stock sales in January and February 2021 under that plan, collecting more than $10.1 million from the transactions.
By April 2021, the FDA ordered a permanent shutdown of Emergent's AstraZeneca vaccine production. The contamination issues had caught up with the company, and shareholders were left holding the bag.
James brought the case under New York's Martin Act, which prohibits insiders from trading while possessing material, nonpublic information.
What the Attorney General Says
"Corporate executives who use insider information to illegally trade company stocks and make a profit betray the public's trust," Attorney General James stated. "Kramer's actions were illegal and unethical, and we are holding him accountable."
James is asking the court to order damages, costs, and disgorgement of profits from Kramer.
Emergent BioSolutions shares rose 1.55% to $11.12 in premarket trading Friday, suggesting investors may view the settlement as closing a chapter on the company's regulatory troubles.
