United States v. Kosinski

Facts

On June 12, 2013, the Cleveland Clinic Foundation, on behalf of Regado, and the Connecticut Clinical Research, LLC (LLC), of which D was president and through which he conducted multiple clinical trials for various drugs, entered into a Confidential Disclosure Agreement (CD') to determine whether D would serve as a principal investigator for the Study on REG1, Regado's new heart drug. Kosinski signed the CDA on behalf of the LLC. The CDA allowed employees of the LLC to receive confidential information from Regado-such as the Study's protocol-which provided information subject to a restriction on disclosure and use. On January 22, 2014, the Cleveland Clinic Foundation, on behalf of Regado, and the LLC, with D signing as president, entered into a superseding contract called a Clinical Study and Research Agreement (CSRA). D became the principal investigator in the clinical trial for a heart-related drug developed by Regado Biosciences, Inc. (Regado). Regado is a publicly traded biopharmaceutical company. Under the CSRA D was required (1) to maintain in 'strict confidence' all the information with which he was provided to enable him to perform as principal investigator; and (2) to complete a financial disclosure form called Form FDA 1572, which in turn required that he 'promptly' disclose to Regado if the value of his Regado stock exceeded $50,000. The form stated that such disclosure would be 'of concern to [the] FDA.' Federal regulations state that a 'potential source of bias . . . is a financial interest of the clinical investigator in the outcome of the study,' which includes 'an equity interest in the sponsor of the covered study.' The product was designed to prevent blood clotting in patients undergoing heart procedures. D was as principal investigator in the Study, responsible for recruiting the subjects, determining their suitability, monitoring their tolerance and reaction, and reporting the results. D persuaded twenty patients who were part of his practice to participate in the Study, for which Regado paid D a fee of $80,000. D was responsible for 'making sure that the patients understand the risks and the reason why they're being enrolled, and getting informed consent and then making sure that they're getting the best level of care and following . . . good clinical practice.' Despite the CSRA, D began purchasing Regado shares on October 8, 2013, four months after entering into the CDA in June 2013, acquiring 2,000 Regado shares that day, and 2,000 more the next day. On October 16, 2013, he executed an application to St. Vincent's Medical Center in Bridgeport, Connecticut, for permission to administer Regado's drug to patients there for the purpose of the Study. In that application, he falsely represented that he did not own any Regado shares. Shortly after the LLC had entered into the CSRA, Kosinski bought another 2,000 Regado shares, and by the end of that month, he owned well over $50,000 of Regado stock, triggering his obligation to 'promptly' disclose that fact to Regado, which he failed to do. In April and May of 2014, D bought an additional 31,000 Regado shares, bringing the total value of his holdings to around $250,000. D failed to make the required disclosure to Regado. As far as Regado knew, the value of D's interest never exceeded $50,000. On Sunday, June 29, 2014, D received an email alerting all principal investigators that the enrollment of new patients was being put on hold because there had been 'several allergic reactions over the past few weeks. On Sunday, June 29, 2014, D received an email alerting all principal investigators that the enrollment of new patients was being put on hold because there had been 'several allergic reactions over the past few weeks. , and the [data safety monitoring [**10] board] and trial leadership need time to review the recent events thoroughly.' On Monday, June 30, 2014, before the information contained therein was made public, D sold all of his Regado shares. On July 2, 2014, Regado issued a press release announcing that it was suspending the Study due to 'serious adverse events related to allergic reactions,' and Regado's stock price fell approximately 58% the next day. If Kosinski had not sold all of his shares beforehand, their value would have been diminished by around $160,000. On July 29, 2014, another email revealed that a patient at another Study site had died from an allergic reaction to the drug and that the Study was on hold. Two days later, before the patient's death was made public, Kosinski placed a bet that Regado's share price would fall: He bought 50 put options that collectively would entitle him to sell up to 5,000 Regado shares for $2.50 each by October 18, 2014. On August 25, 2014, Regado issued a press release announcing that the trial was being permanently halted due to the frequency and severity of allergic reactions. Regado's share value dropped from around $2.80 to around $1.10. On August 28, 2014, Kosinski bought 5,000 Regado shares for around $1.10 each and then used his put options to sell the same number of shares for $2.50 each. Kosinski's net profits from these transactions were around $3,300. On September 29, 2014, a month after the Study was terminated, the Cleveland Clinic Foundation sent D a letter that, among other things, offered a 'reminder' that 'if any investigator has any relevant financial interest changes related to Regado Biosciences for 1 year following termination of the study, please send updated Financial Disclosure Forms to Regado.' In response to this letter, on October 1, 2014, D executed a Form FDA 1572, as he was required to do under the CSRA. That was the first FDA Form 1572 that Kosinski had filed since the initial one he filed in December 2013 when he executed the CSRA on behalf of the LLC. D was tried and convicted of two counts of violating § 10b of the Securities Exchange Act and Rule 10b-5. One count was based on the sale of all his shares shortly after receiving the June 2014 email announcing the Study's suspension, and the other count was based on his purchase of 50 put options shortly after learning the Study would be canceled. D maintains that he agreed only to keep the information he received in the course of the Study in strict confidence, which he claims he did, and that secretly trading on the basis of information was not a breach of his agreement. Regado brought a civil action for breach of contract.

Issues

Rule of Law

Holding and Decision

Legal Analysis

© 2007-2024 ABN Study Partner.