The Securities and Exchange Commission yesterday charged the wife of the president of Genentech Inc. with insider trading, alleging that she urged her brother to invest in the biotechnology company just days before it had agreed to a $2.1 billion takeover.
The SEC said that Mollie E. Raab's actions amounted to "a breach of the relationship of trust and confidence which she had with her husband," G. Kirk Raab, Genentech's president and chief operating officer.
The SEC also charged Mollie Raab's brother, Michael Gaylord Painter, and a friend of his, Joseph Jeffries, both of San Antonio, with insider trading, saying they acted on the information given to them by Mollie Raab. Raab of Hillsborough, Calif., agreed to pay a $162,400 civil penalty and Jeffries agreed to disgorge $133,700 in profits.
In addition, Painter and Jeffries were assessed penalties of $63,700 and $133,700, respectively, but those penalties were waived because the two men demonstrated that they were unable to pay. The defendants consented to a final judgment without admitting or denying the SEC's charges.
Neither San Francisco-based Genentech nor G. Kirk Raab was charged with any wrongdoing.
Genentech, the nation's largest biotechnology firm, announced Feb. 2, 1990, that it would merge with Swiss-based Roche Holding Ltd. Under the terms of the deal, Roche was to invest $492 million in Genentech and buy half of its stock for $36 a share -- 65 percent higher than the price at which the stock had traded the day before.
While the negotiations over the merger were underway, Mollie Raab recommended to her brother "on or about Jan. 22" that he borrow money in order to invest in Genentech stock, the SEC said. She also told him that "good things were about to happen at Genentech," according to the agency, and cautioned him to keep her comments confidential and to "buy now."
Raab's husband had told her that his comments to her about the pending merger were confidential, according to Harry Weiss, an SEC attorney who worked on the case.
Between Jan. 22 and Feb. 2, Painter told Jeffries, a friend of his, that his sister had recommended buying Genentech stock, indicating that "something good was going to happen there soon," said the SEC. Jeffries bought 300 option contracts to purchase Genentech securities, later realizing a profit of $127,400 on them, which was intended to be split with Painter, the SEC said.
Jeffries also recommended the stock to two other friends who were not charged with insider trading.
"Mrs. Raab did not profit on the stock trades," her husband said in a statement released yesterday.
"She knows it was wrong to have told her brother, who was having prolonged financial difficulty, and she accepts her penalty."
Raab said that he and his wife "are both sorry for any embarrassment this incident has caused Genentech and its employees."