SEC to Probe Doctors' Dealings With Stock Analysts

Network News

X Profile
View More Activity
By Justin Gillis
Washington Post Staff Writer
Wednesday, August 10, 2005

The Securities and Exchange Commission will examine allegations that doctors involved in research tests are improperly selling advance information to stock analysts and hedge funds, a person familiar with the matter said yesterday.

The person said the allegations, in a report Sunday by the Seattle Times, would be referred to an SEC unit examining potential insider trading in drug and biotech stocks. That investigation has been underway since unusual trading patterns in several biotech stocks came to light three years ago. The person spoke on condition of anonymity because the matter is under active review.

The SEC does not publicly comment on pending investigations.

Sen. Charles E. Grassley (R-Iowa), chairman of the Senate Finance Committee, this week asked the SEC and the Justice Department to investigate.

There has long been controversy about trading patterns in some drug and biotech stocks, particularly those of smaller companies. Investors often value such stocks on the basis of tests of a single drug, and they try to make educated guesses about the chances of Food and Drug Administration approval.

Small investors have repeatedly charged that some hedge funds and other sophisticated investment groups seemed to be doing more than guessing. Observing buying or selling just before events such as FDA committee meetings, small investors have charged that some people must be getting word of secret test results or internal FDA deliberations. But bigger investment groups have replied that they are simply talking to enough doctors and patients to get a clear picture of a drug's prospects, violating no rules.

The latest wrinkle was a Seattle Times report Sunday that said some doctors involved in running corporate-sponsored drug tests are taking payments from stock analysts for violating confidentiality agreements and revealing secret information.

That top doctors take analyst payments had also been known for years, but the doctors have always argued that they were being paid for their general expertise about a drug, not for specific results.

The SEC has long followed the controversy, but prosecutions have been difficult. Investigators need evidence that a particular doctor gave not just general observations, but specific, still-secret test details that were then used to trade shares. The person familiar with the SEC inquiry said it would require "a case-by-case analysis."


© 2005 The Washington Post Company

Network News

X My Profile
View More Activity