U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 19032 / January 13, 2005

SEC v. Patricia B. Rocklage, William M. Beaver and David G. Jones, (United States District Court for the District of Massachusetts, C.A. No. 05-10074 (MEL).

SEC CHARGES WIFE OF FORMER CEO OF MASSACHUSETTS PHARMACEUTICAL COMPANY AND TWO OTHERS WITH INSIDER TRADING

The Securities and Exchange Commission yesterday filed an insider trading action involving trading in the common stock of Massachusetts-based Cubist Pharmaceuticals, Inc. against Patricia B. Rocklage, the wife of Scott M. Rocklage, Cubist's former Chairman and CEO, William M. Beaver, Patricia Rocklage's brother, and David G. Jones, Beaver's best friend and neighbor. Patricia Rocklage resides in Sudbury, Massachusetts. Both Beaver and Jones are residents of Charlotte, North Carolina. The Commission filed its complaint in the United States District Court for the District of Massachusetts.

In its complaint, the Commission alleges that, on December 31, 2001, Scott Rocklage informed Patricia B. Rocklage of the negative results of a clinical trial involving one of Cubist's most important products, Cidecin. The complaint also alleges that, unbeknownst to her husband, Ms. Rocklage had a pre-existing understanding with her brother whereby she would give him "a wink and a nod" if she ever became aware of any bad news about Cubist that might affect its stock price. According to the complaint, shortly after learning about the trial results, Ms. Rocklage told her husband that she intended to signal Beaver to sell his Cubist stock. The complaint states that Scott Rocklage urged his wife not to take this action. The complaint asserts that, notwithstanding her husband's entreaties, by no later than the morning of January 2, 2002, Ms. Rocklage provided "a wink and a nod" to Beaver, who, at approximately 10 a.m. that day, sold all 5,583 shares of Cubist stock that he owned or controlled. The complaint further contends that, after receiving the signal from his sister, Beaver tipped his best friend and neighbor, Jones, who proceeded to sell all 7,500 shares of Cubist stock that he owned on the morning of January 3, 2002. Following the post market close announcement of the trial results on January 16, 2002, Cubist's stock price dropped by 46%, from a closing price of $31.75 that day to a closing price of $17.02 on January 17, 2002. By selling when they did, Beaver and Jones avoided losses of $99,527 and $133,222, respectively.

In its lawsuit, the Commission alleges that Patricia Rocklage, Beaver and Jones violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission is seeking injunctive relief, disgorgement of the losses avoided plus prejudgment interest thereon and civil penalties.

The Commission acknowledges the extensive assistance provided by the NASD in this matter.

SEC Complaint in this matter

http://www.sec.gov/litigation/litreleases/lr19032.htm