Baltimore-based consultant Brett A. Cohen received coded e-mails from a fraternity brother about two biotechnology companies and passed the information to an uncle, David V. Myers, of Cleveland, Ohio who traded on the tip, the SEC said.
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The fraternity brother, who was not named, received the information from his brother, a patent agent for San Diego-based Sequenom Inc(NasdaqGM:SQNM - News), a maker of genetic analysis products, the SEC said.
In one of the e-mails sent to Cohen, the patent agent's brother asked if there was any word related to "Blu H@rsesh0e," the SEC said. In the movie Wall Street, "Blue Horseshoe loves Anacot Steel" was a code phrase used by actor Charlie Sheen to pass along an insider tip.
Attorneys for Cohen and Myers did not immediately respond to calls seeking comment.
Myers had garnered more than $600,000 in profits trading on the inside information, the SEC said.
In a parallel proceeding, the U.S. Attorney for the Southern District of California filed criminal charges against Cohen and Myers.
Myers bought 35,000 shares of Exact Sciences before the acquisition was announced on January 9, 2009, the SEC said.
The news sent Exact Sciences' stock up 50 percent, allowing Myers to pocket illegal profits by selling most of the stock over the next few weeks, the SEC said.
The patent agent also passed on tips ahead of Sequenom's April 29, 2009 announcement that investors could no longer rely on previous data about its Down syndrome test, the SEC said.
Myers bought Sequenom put options just before the announcement, which caused a 75 percent drop in the company's stock, according to the SEC complaint.
Myers later sold that entire position for illegal profits of more than $570,000, the SEC said.