Sometimes, Experience Can Be a Bad Thing

When IVAX Corp. chairman and chief executive Phillip Frost named Zachariah P. Zachariah to his company's board, he trumpeted the new director's "great knowledge and experience."

Zachariah did have several decades of experience as a cardiologist, something from which a specialty pharmaceuticals company like IVAX could truly benefit.

Unfortunately, according to federal regulators, Zachariah had experience at something else, and it has come back to bite IVAX and its new owner, Teva Pharmaceuticals.

The Securities and Exchange Commission today sued Zachariah, accusing him of trading on insider information that he obtained as an IVAX director about two months after he joined the board.

At the same time, the S.E.C. accused Zachariah — a political appointee of both President Bush and his brother, former Governor Jeb Bush of Florida — of having engaged in insider trading in shares of another company where he worked as a consultant, Correctional Services Corp.

In the IVAX matter, the S.E.C. says that Frost called Zachariah and other IVAX directors on July 6, 2005, after reaching a deal to sell the company to Teva. Although he was forbidden to trade on the information, Zachariah started doing so "within minutes" of hanging up, the commission contends.

Over time, Zachariah bought 35,000 shares of IVAX stock at an average cost of about $20.86 a share. Teva offered to buy IVAX for $26 a share, netting Zachariah a quick and virtually risk-free gain of almost $180,000.

Zachariah also shared the news with his brother, Mammen P. Zachariah, according to the S.E.C. complaint. Mammen Zachariah bought 2,000 shares of IVAX stock for about $23 a share on the last trading day before the Teva deal was announced on July 25, 2005.

IVAX, however, wasn't the first case in which Zachariah illegally traded on insider information, the S.E.C. added in its complaint.

Before making his IVAX trades, Zachariah had bought up more than $200,000 worth of stock in Correctional Services Corp., where he was serving as a consultant.

His purchases — and others by his brother and by a third Fort Lauderdale-area doctor, Sheldon Nassberg — were made as the company was in talks to be acquired by the GEO Group.

Mammen Zachariah bought $162,000 worth of Correctional Services stock, while Nassberg bought $32,000, the commission said. Correctional Services shares traded for less than $3 before GEO said it would buy the company for $6 a share.

In its suit, the S.E.C. is seeking to force the three defendants to give back any ill-gotten gains, and to pay a fine and interest. It also wants a court to forbid Zachariah to serve as an officer or director of any publicly traded company in the future.

by Mark Stein