A former Merck & Co. (MRK) analyst was charged by the U.S. with illegally passing merger tips to a business school friend, helping him reap about $722,000 in illicit profits.
U.S. Attorney Preet Bharara in Manhattan and the U.S. Securities and Exchange Commission filed parallel cases against Zachary Zwerko, 32, of Cambridge, Massachusetts, alleging he engaged in a two-year insider-trading scheme with an unidentified former classmate at Rutgers Business School.
As part of his job at Merck, Zwerko had access to a shared computer drive that contained folders about potential transactions, according to the SEC. Zwerko repeatedly passed nonpublic information to the trader, according to the U.S. He’s charged with one count of conspiracy to commit securities fraud, which carries a term of as long as five years in prison.
“Zachary Zwerko was a spy in the camp of his own company who passed secret merger and acquisition information to his co-conspirator so lucrative illegal trades could be made,” Bharara said in a statement.
Zwerko was arrested at his home on Oct. 10 by agents with the Federal Bureau of Investigation, Bharara said. He appeared today in Boston federal court before U.S. Magistrate Judge Judith Dein, who agreed to release him on $1 million bond secured by $100,000 in cash or property. She ordered him to appear in Manhattan federal court to face the charges.
The U.S. said Zwerko got confidential information about negotiations between Merck and Idenix Pharmaceuticals Inc. before the June 9 announcement that Merck had agreed to acquire Idenix for $24.50 a share. Insiders used the code name “Project Invincible” for the deal, the U.S. said.
Zwerko, a senior finance analyst at Merck until July, was also accused of obtaining information about private negotiations in 2012 between Ardea Bioscience Inc. and drug companies, including Merck, participating in a competitive bidding process that resulted in an April 23, 2012, announcement thatAstra Zeneca Plc (AZN) had agreed to acquire Ardea for $32 a share.
The SEC said Zwerko repeatedly tipped the trader, with whom he’s socialized and skied since they met at Rutgers in 2008.
“Zwerko’s employer entrusted him with confidential information about possible acquisitions and he was brazen enough to steal that information for his own benefit,” Sanjay Wadhwa, senior associate director of the SEC’s New York office, said in a statement.
An FBI agent said in court papers that mobile-phone, computer and trading records showed Zwerko was in contact with his friend, who later traded on the information, according to the agent.
The SEC is asking that Zwerko surrender any illegal gains he made as a result of the scheme.
Lainie Keller, a spokeswoman for Whitehouse Station, New Jersey-based Merck, confirmed that Zwerko had been an employee and said the company is cooperating fully with the U.S.
Jeffrey Denner, a lawyer for Zwerko, declined to comment on the charges, saying he was reviewing the government’s allegations.
The criminal case is U.S. v. Zwerko, 14-mj-02253; the civil case is U.S. Securities and Exchange Commission v. Zwerko, 14-cv-8181, U.S. District Court, Southern District of New York (Manhattan).