Federal authorities have charged a former Pfizer Employees and his close friend illegally traded shares on Thursday based on non-public study results of the pharmaceutical company’s Covid antiviral pill Paxlovid.
Both the Justice Department and the Securities and Exchange Commission announced insider trading charges against Amit Dagar, Pfizer’s chief statistical program officer at the time of the deals, and his friend Atul Bhiwapurkar.
Dagar, who helped manage and analyze the Paxlovid clinical trial data, and Bhiwapurkar “participated in an insider trading scheme to make illegal profits from option trading based on inside information” on the then-unreleased Paxlovid results in November 2021, according to the report the DOJ.
The two people bought their Pfizer call options a day before the data was released. After the trial results were released, Dagar and Bhiwapurkar sold their call options and made “substantial gains” totaling more than $350,000, according to a DOJ press release.
“The allegations in this case relate to a former Pfizer employee’s personal conduct in violation of company policies,” a Pfizer spokesman told CNBC. “Pfizer is cooperating with the government investigation.”
Dagar, 44, of Hillsborough, New Jersey, was arrested Thursday morning and charged with four counts of securities fraud, each carrying a maximum sentence of 20 years in prison, the Justice Department said. He was also charged with conspiracy to commit securities fraud, which carries a maximum sentence of five years in prison.
Bhiwapurkar, 45, of Milpitas, Calif., was also arrested early Thursday and charged with two counts of securities fraud and one count of conspiracy to commit securities fraud, according to the DOJ.
Patrick Smith, an attorney representing Dagar, said his client denies the allegations and looks forward to defending himself in court.
Smith also said “no one at Pfizer ever told Dagar the results of the Paxlovid study.”
Michael Bachner, an attorney for Bhiwarpukar, said his client denies trading inside information and based his decisions on publicly available information about the drug’s effectiveness.
Bhiwarpukar “intends to vigorously defend himself against these allegations,” Bachner said.
On Nov. 4, 2021, Dagar learned that a mid-stage Paxlovid trial returned positive results, a day ahead of schedule for publication, the SEC’s complaint said.
The study found that in high-risk, non-hospitalized adults, Paxlovid reduced the number of hospitalizations or deaths by 89% compared with placebo.
Dagar’s manager told him via chat that the process had “come to a conclusion” and that there would be a press release “tomorrow”. Dagar responded with “Oh, really” and “kinda exciting,” according to the complaint.
Within hours of this exchange, Dagar bought “short-term, out-of-the-money” Pfizer call options. An out-of-the-money call option allows a person to buy a stock at a price higher than the current market price.
Prior to that date, Dagar never used his brokerage account to trade Pfizer options and has not traded the company’s stock since 2018, the complaint said.
Dagar reportedly shared the successful results with Bhiwapurkar, who bought similar call options on Pfizer and tipped off another friend, not named in the complaint.
Pfizer’s stock price rose nearly 11% after the company released Paxlovid data on Nov. 5, 2021.
Dagar, who bought $8,380 worth of Pfizer call options, posted an intraday gain of about $214,395, according to the SEC. According to the agency, that translates to an investment return of around 2,458%.
Bhiwapurkar, who bought $7,400 worth of call options, netted about $60,300 on the day, according to the SEC.
The unnamed person who was tipped by Bhiwapurkar reportedly made about $29,770 in profits in one day, according to the indictments.
“As alleged in our complaint, Amit Dagar misused his access to confidential clinical trial results to enrich himself and his friend Atul Bhiwapurkar,” Joseph Sansone, head of the SEC’s Market Abuse Unit, said in a press release.
“Dagar and Bhiwapurkar allegedly exploited this information by trading out-of-the-money call options for huge intra-day returns. Thanks to our surveillance, the accused now face the consequences of their greed,” he continued.