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Insider Traders Who Push Too Far Can Pay Dearly

By Jerry Knight
Monday, September 27, 2004; Page F01

Anyone who failed to grasp the lessons of the Martha Stewart case needs to learn about Eric I. Tsao.

Tsao used to be a vice president of MedImmune Inc., the Gaithersburg biotech company.


U.S. Attorney Thomas DiBiagio, right, prosecuted Eric Tsao after the case grew from a civil to a criminal proceeding. (Dennis Cook -- AP)

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Now he faces up to 10 years in prison for insider trading and lying to Securities and Exchange Commission lawyers who were investigating him.

Like Stewart, Tsao wouldn't be facing prison if he had told the truth.

Like Stewart, he's turned a minor wrongdoing -- one that's often not even considered criminal -- into a major offense.

Court documents show that Tsao twice got away with trading on inside information, funneling his trades through a Charles Schwab account in the name of his father, who lives in Taiwan.

The third time he tried, Tsao's Taiwan address failed to hide him from stock market regulators who were working within walking distance of his office.

Until MedImmune moved to a new building a few months ago, its headquarters was in the same Montgomery County office park as the market surveillance division of NASD Regulation, the private regulatory agency that oversees trading on the Nasdaq Stock Market.

When Tsao sat at his office computer and typed in an order for 10,000 shares of Aviron, a company MedImmune was negotiating to buy, he left an electronic trail for regulators to follow.

When MedImmune's deal to buy Aviron was announced in December 2001, computers at the NASDR kicked on as they always do and began scanning, trade by trade, all the buying and selling of stocks of both companies. One of the trades they spotted was traced to Tsao, who made $146,000 after he sold his Aviron stock less than a month after he bought it.


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