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The Securities and Exchange Commission continues to cast its insider trading nets, and July 16 it caught the mayor of a small South Carolina seaside city. SEC lawyers in San Francisco accuse William Rauch, mayor of Beaufort, S.C., of buying up shares of Alameda biotech company Advanced Cell Technology Inc. ahead of a 2006 public announcement that sent the stock price up from 40 cents a share to $1.83 before settling at 96 cents. Rauch, who was working as a consultant for the company, bought $11,000 worth of stock in his children’s accounts after learning that Advanced Cell would publicize its new method for creating human stem cell lines from a single embryonic cell without harming the embryo in August 2006, the SEC said in its complaint. Rauch never cashed the stock in for a profit, but the Beaufort mayor agreed to settle the charges by paying $20,000 in disgorgement and a $20,000 fine, with the fine roughly equaling the profit he would’ve made if he’d sold the stock at 96 cents a share. With the ebb of backdating investigations, insider trading cases have been gaining popularity. This is the third insider trading case brought by the San Francisco SEC office this year. And with the comparatively low dollar amount at stake, defense lawyers observe that there’s no such thing as a small fish. Among other things, it’s “a reminder that relatively small trades do not ‘fly under the radar,’” said Jahan Raissi, a partner with Shartsis Friese in San Francisco. “There have been a fair number of cases brought against people who did not make eye-popping amounts of money.” Ralph Tupper, the Beaufort attorney that Rauch turned to, said his client settled to avoid the cost of fighting charges. “To settle cost Mr. Rauch approximately $44,000, but to litigate against the SEC would have cost Mr. Rauch much more,” Tupper said in a prepared statement. Tupper also noted that Rauch bought the stock for his children and never sold it, and pointed out that the value has actually declined since Rauch bought it in August 2006 for around 35 cents a share. Today, Advanced Cell’s stock is traded on the pink sheets for 3 cents a share. SEC lawyers said they had a slam-dunk case against Rauch. “Some of the challenge with insider trading cases is putting the information inside the head of the person,” said Robert Leach, a San Francisco branch chief. “Here there was no dispute about when he learned of the information.” The SEC complaint alleges that Rauch learned about the publication of Advanced Cell’s breakthrough in a scientific journal from a company executive days before buying the stock. Although Rauch wasn’t a permanent employee with Advanced Cell, he had signed a confidentiality agreement and knew the information was non-public and material, the SEC said. Staff attorney Eric Brooks handled the case for the SEC. “It is a reminder that companies need to make sure consultants and temporary workers are aware of the insider trading rules and subject to the same trading windows that regular workers are,” said Shartsis Friese’s Raissi.

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