A Medical Device Daily

The Securities and Exchange Commission has filed insider trading charges against a former MDS (Toronto, Ontario) employee who allegedly stole confidential information about MDS's impending tender offer for the shares of Molecular Devices (Sunnyvale, California). Along with his wife, he allegedly used that information to trade Molecular securities ahead of the merger's public announcement, under which MDS would pay $35.50 a share for all outstanding common shares of Molecular.

The Ontario Securities Commission (OSC) also brought its own separate enforcement action today to address this conduct.

The SEC alleges that Shane Bashir Suman of Toronto learned about secret merger negotiations through access to electronic data in his job as an information technology specialist at MDS, then gave that information to his wife, Monie Rahman. In the days before the tender offer became publicly known, Suman and Rahman made just over $1 million by trading in the securities of Molecular.

The SEC's complaint, filed in the U.S. District Court for the Southern District of New York, alleges that Suman was able to read the contents of confidential e-mails and other electronic data without detection. For example, the circumstances in which Suman was called to restore an electronic document on Jan. 23, the day before he and his wife started trading, suggested the code name for the MDS/Molecular merger and the sensitivity associated with that project.

Later that day, Suman conducted Internet searches for both that code name and for Molecular Devices. Just after running those searches, Suman called Rahman and spoke to her much longer than their phone records indicate they usually spoke, according to the charges.

Between Jan. 24 and Jan. 26, Suman and Rahman bought 12,000 Molecular shares and 900 Molecular call options. Brokerage records indicate that a portion of the Molecular securities purchases were financed with a margin loan of roughly $200,000, and the couple previously did not have a position in Molecular securities. On Jan. 29, MDS and Molecular jointly reported the tender offer for Molecular's shares. The stock price immediately rose more than 46% from almost $24 to roughly $35, making Rahman and Suman's trades worth more than $1 million.

In other legalities: the U.S. Attorney's Office for the District of Columbia and the Justice Department's Civil Division have reached a criminal deferred prosecution agreement and a civil False Claims Act with Maximus (Reston, Virginia), requiring Maximus to pay $30.5 million.

The deferred prosecution agreement, civil settlement, and corporate integrity agreement resolve an investigation of Maximus' activities under a contract with the District of Columbia's Child and Family Services Agency (CFSA). Maximus helped CFSA submit claims to Medicaid for services provided by the District to children in its foster care program. The services, known as target case management (TCM) services, are provided by CFSA to assist foster children with their medical, social and educational needs.

The admission of responsibility in the deferred prosecution agreement and the civil settlement resolve allegations that Maximus's employees, including a former company VP, decided to cause CFSA to submit claims to the Medicaid program for TCM services for each child placed in the care of CFSA, whether or not services had in fact been provided to those children.

In the settlement, Maximus agreed to pay the U.S. $30.5 million. The U.S. had previously recovered $12.15 million from CFSA after a review conducted by Centers for Medicaid and Medicare Services revealed that CFSA could not support 35% of the targeted case management claims submitted.

The investigation followed the filing of a lawsuit on behalf of the U.S. by Benjamin Turner, a former division manager at Maximus. Turner filed the suit under the whistleblower provisions of the False Claims Act and will receive $4.93 million as his share of the settlement.