Joseph Rugg's Health Law Blog

The Securities and Exchange Commission last week charged five physicians with insider trading in the securities of an East Lansing, Mich.-based holding company for a medical professional liability insurer.

The SEC alleges that Apparao Mukkamala learned confidential information from board meetings and other communications about the anticipated acquisition of American Physicians Capital Inc. (ACAP) by another insurance company. Mukkamala in turn shared the nonpublic information with fellow physicians and friends Suresh Anne, Jitendra Prasad Katneni and Rao A.K. Yalamanchili as well as his brother-in-law Mallikarjunarao Anne. The five physicians each purchased ACAP stock based on confidential information about the impending sale in the months leading up to a public announcement. Collectively, they made more than $623,000 in illegal profits on their ACAP stock following the announcement.

Without admitting or denying the allegations in the SEC’s complaint, the physicians agreed to pay a combined total of more than $1.9 million to settle the SEC’s charges.

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of Michigan’s Southern Division, Mukkamala is a resident of Grand Blanc, Mich., and served as a member of ACAP’s board since its formation in July 2000. He became its chairman in May 2007. At a meeting on March 12, 2010, ACAP’s board confidentially discussed whether it should consider a potential sale of ACAP and instructed company management to evaluate whether or not to continue as an independent, stand-alone company.

The SEC alleges that as ACAP’s board and management continued undertaking definite steps toward a sale, Mukkamala routinely disclosed material nonpublic information along the way to the other four physicians. Between April 30 and July 7, 2010, they illegally purchased nearly $2.2 million of ACAP stock based on the confidential information that Mukkamala shared. Mukkamala himself made a trade in the trading account of Chinmaya Mission West, a charitable organization for which he was then serving as president. On July 8, the acquisition of ACAP by Napa, Calif.-based insurer The Doctors Company was publicly announced, and ACAP shares closed approximately 28 percent higher than the previous day’s closing price.

See on www.sec.gov

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