Enforcement News: SEC Charges Biostatistician and His Consulting Company with Insider Trading
Print Article- Posted on: Jan 21 2026
By: Jeffrey M. Haber
Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b‑5 promulgated thereunder prohibit trading securities on the basis of material nonpublic information through any deceptive device, scheme, or act. Insider trading liability arises under either the classical theory, where corporate insiders owe duties to shareholders, or the misappropriation theory, where those entrusted with confidential information owe duties to the information’s source. In today’s article, we examine an SEC enforcement action against a biostatistician and his company for insider trading involving C4 Therapeutics, Inc., a clinical-stage biopharmaceutical company, under the misappropriation theory of liability.
A Primer on Insider Trading
Section 10(b) of the Exchange Act makes it “unlawful for any person … [t]o use or employ, in connection with the purchase or sale of any security[,] … any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe.”[1] Rule 10b-5, which implements Section 10(b), prohibits the use of “any device, scheme, or artifice to defraud” or “any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person … in connection with the purchase or sale of any security.”[2] “Insider trading—unlawful trading in securities based on material non-public information—is well established as a violation of section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.”[3]
“There are two theories of insider trading[.]”[4] First, “[u]nder the classical theory of insider trading, a corporate insider is prohibited from trading shares of that corporation based on material non-public information in violation of the duty of trust and confidence insiders owe to shareholders.”[5] “A second theory, grounded in misappropriation, targets persons who are not corporate insiders but to whom material non-public information has been entrusted in confidence and who breach a fiduciary duty to the source of the information to gain personal profit in the securities market.”[6] “The core difference between the two theories is the source of the duty. Under the classical theory, the duty is owed to the corporation; under the misappropriation theory, the duty is owed to the source of the information.”[7]
“Under both theories, the fiduciary duty of trust and confidence requires the person who knows material nonpublic information either to abstain from trading on the information or to make a disclosure before trading.”[8] With respect to the classical theory, “[a]n insider can avoid liability by disclosing the relevant information publicly so that she is not at a trading advantage over the corporation’s shareholders.”[9] As for the misappropriation theory, “[a] misappropriator can avoid liability by disclosing” to her source “the fact that she will be trading on confidential information …; by doing so, the misappropriator is no longer deceiving her source, and thus she is not violating § 10(b).”[10]
“Both theories extend liability to ‘tippees’: a person who did not themselves owe a duty to anyone but traded based on an insider tip from someone else.”[11] “A tippee is liable only if (1) the tipper themselves breached a duty by tipping, and (2) the tippee knew or should have known of that breach.”[12]
The test for whether the tipper breached a duty by tipping “is whether the [tipper] personally will benefit, directly or indirectly, from his disclosure” of confidential information to the tippee.[13] The United States Supreme Court has “defined personal benefit broadly.”[14]
In Dirks, the Court identified numerous examples of personal benefits that prove the tipper’s breach. These include: a “pecuniary gain,” a “reputational benefit that will translate into future earning,” a “relationship between the insider and the recipient that suggests a quid pro quo from the latter,” the tipper’s “intention to benefit the particular recipient,” and a “gift of confidential information to a trading relative or friend” where “[t]he tip and trade resemble trading by the insider himself followed by a gift of the profits to the recipient.”[15] As the foregoing examples show, the tipper’s personal benefit need not be pecuniary in nature.[16]
While the insider who personally benefits from disclosing confidential information breaches their duty, “the insider who discloses for a legitimate corporate purpose does not.”[17]
Under both theories of liability, scienter is required.[18] Scienter is “a mental state embracing intent to deceive, manipulate, or defraud.”[19] “In every insider trading case, at the moment of tipping or trading, just as in securities fraud cases across the board, the unlawful actor must know or be reckless in not knowing that [his] conduct [is] deceptive.”[20]
Pursuant to the misappropriation theory, to prove liability, a plaintiff must “establish (1) that the defendant possessed material, nonpublic information; (2) which he had a duty to keep confidential; and (3) that the defendant breached his duty by acting on or revealing the information in question.”[21]
Insider trading claims are subject to Rule 9(b) of the Federal Rules of Civil Procedure, which requires that circumstances constituting fraud be stated “with particularity.”[22] “But because insider tips are typically passed on in secret, Rule 9(b) is somewhat relaxed, allowing plaintiff to plead certain facts on information and belief.”[23] Specifically, plaintiffs may plead facts that imply the content and circumstances of an insider tip if those facts are peculiarly within the knowledge of defendant or the tipper.[24] Nevertheless, “[w]hile the rule is relaxed as to matters peculiarly within the adverse parties’ knowledge, [] allegations [on information and belief] must then be accompanied by a statement of the facts upon which the belief is founded.”[25]
With the foregoing legal principles in mind, we examine Securities and Exchange Commission v. Hong (John) Wang and Precision Clinical Consulting, LLC, No. 26-civ-10140 (D. Mass. filed Jan. 14, 2026).
Securities and Exchange Commission v. Hong (John) Wang and Precision Clinical Consulting, LLC
The SEC announced the enforcement action on January 14, 2026. In the press release, the SEC stated that it charged New Jersey resident Hong (John) Wang (“Defendant”) and his company, Precision Clinical Consulting LLC (“Precision” and, collectively with Wang, the “Defendants”), with insider trading in the stock of C4 Therapeutics, Inc. (“C4”), a clinical stage biopharmaceutical company headquartered in Watertown, Massachusetts.
According to the SEC’s complaint, filed in the U.S. District Court of Massachusetts, Defendant allegedly became aware of positive clinical trial results for C4’s flagship multiple myeloma and non-Hodgkin lymphoma drug while he was performing biostatistical consulting work for the company and had access to the drug’s clinical trial data. The complaint alleged that Defendant’s consulting contract required him, among other things, to conduct biostatistical analysis on the clinical trial data related to this drug.
The SEC alleged that Defendant purchased C4 shares between November 20, 2023 and December 12, 2023, while aware of material nonpublic information relating to the clinical trial. The SEC further alleged that after C4 announced positive results concerning one of its cancer-treating drugs on December 12, 2023, Defendant made $489,739 in realized and unrealized profits from his position. The SEC maintained that Defendant purchased the C4 shares through four separate brokerage accounts, one of which was held in Precision’s name.
The SEC charged Defendants with violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC seeks disgorgement plus prejudgment interest thereon against Defendants, and permanent injunctive relief and civil penalties against Defendant.
In a parallel action, on January 14, 2026, the U.S. Attorney’s Office for the District of Massachusetts announced criminal charges against Defendant.[26] In that regard, Defendant was charged in an indictment with three counts of securities fraud.
Takeaway
The misappropriation theory of insider trading targets individuals who are not corporate insiders but who obtain confidential, material information through a relationship of trust. Under this theory, liability arises when a person entrusted with such information—like Defendant, who allegedly accessed confidential clinical‑trial data through his biostatistics consulting work—breaches a duty owed to the source by secretly trading on that information for personal gain. As discussed, defendant’s consulting role required him to maintain the confidentiality of C4’s drug‑trial results, yet he allegedly exploited this access by purchasing shares before the positive data became public. Defendant’s actions, if proven, demonstrate the core basis of the misappropriation theory: using material, non-public information while concealing the intent to trade from the information’s source. The SEC’s enforcement action, along with the parallel criminal charges, highlights how alleged violations of the misappropriation theory can lead to material consequences, reinforcing the duty of professionals and consultants to safeguard confidential information and abstain from trading on it.
___________________________________
Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.
[1] 15 U.S.C. § 78j.
[2] 17 C.F.R. § 240.10b-5.
[3] S.E.C. v. Obus, 693 F.3d 276, 284 (2d Cir. 2012); In re Nat’l Instruments Corp. Sec. Litig., No. 23 Civ. 10488 (DLC), 2024 WL 4108011, at *5 (S.D.N.Y. Sept. 6, 2024) (quoting United States v. Chow, 993 F.3d 125, 136 (2d Cir. 2021)); United States v. Cusimano, 123 F.3d 83, 87 (2d Cir. 1997) (citing United States v. O’Hagan, 521 U.S. 642, 650-52 (1997)).
[4] United States v. Rajaratnam, 719 F.3d 139, 158 (2d Cir. 2013); see also S.E.C. v. Watson, 659 F. Supp. 3d 409, 415 (S.D.N.Y. 2023).
[6] Id.
[7] Watson, 659 F. Supp. 3d at 415.
[8] S.E.C. v. One or More Unknown Traders in Sec. of Onyx Pharms., Inc., No. 13 Civ. 4645 (JPO), 2014 WL 5026153, at *5 (S.D.N.Y. Sept. 29, 2014) (citing Dirks v. SEC, 463 U.S. 646, 654 (1983) (classical theory), and O’Hagan, 521 U.S. at 655 (misappropriation theory)); see also Chow, 993 F.3d at 137.
[9] Onyx, 2014 WL 5026153, at *5 (citing Dirks, 463 U.S. at 654).
[10] Id.
[11] Watson, 659 F. Supp. 3d at 415 (citing Dirks, 463 U.S. at 660).
[12] Id. (citing id. at 660 & n.19).
[13] Id. (citing id. at 662); see also United States v. Martoma, 894 F.3d 64, 73-74 (2d Cir. 2017).
[15] Dirks, 463 U.S. at 663-64.
[16] Watson, 659 F. Supp. 3d at 415 (citingSalman v. United States, 580 U.S. 39 (2016)).
[17] Martoma, 894 F.3d at 416; United States v. Pinto-Thomaz, 352 F. Supp. 3d 287, 298 (S.D.N.Y. 2018) (a personal benefit is “grounded in using company information for personal advantage, as opposed to a corporate or otherwise permissible purpose (such as whistleblowing)”).
[18] See Obus, 693 F.3d at 286; see also United States v. Newman, No. 12 Cr. 121 (RJS), 2013 WL 1943342, at *2 (S.D.N.Y. May 7, 2013).
[19] Id. at 286 (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 & n.12 (1976)).
[20] Id.
[21] Veleron Holding, B.V. v. Morgan Stanley, 117 F. Supp. 3d 404, 430 (S.D.N.Y. 2015) (quoting S.E.C. v. Lyon, 605 F. Supp. 2d 531, 541 (S.D.N.Y. 2009).
[22] S.E.C. v. One or More Unknown Traders in Sec. of Onyx Pharm., Inc., 296 F.R.D. 241, 248 (S.D.N.Y. 2013).
[23] Sec. & Exch. Comm’n v. Yin, No. 17-CV-972 (JPO), 2018 WL 1582649, at *2 (S.D.N.Y. Mar. 27, 2018).
[24] Onyx, 26 F.R.D. at 248.
[25] Yin, 2018 WL 1582649, at *2 (quoting Segal v. Gordon, 467 F.2d 602, 608 (2d Cir. 1972)).
[26] It must be remembered that the details contained in the charging document are allegations only. Defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.
Tagged with: Insider Trading, Rule 10b-5., Section 10(b), Securities, Securities and Exchange Act, Securities and Exchange Commission, Securities Fraud
