Judge sentences biotech scientist to 15 months for insider trading


WASHINGTON - A star scientist who played a key role in developing one of the top-selling drugs in Maryland's biotechnology industry was sentenced to concurrent 15-month prison terms yesterday for insider trading and lying about it to federal investigators.

Standing with his hands at his sides, Eric I. Tsao, a former vice president at Gaithersburg-based MedImmune Inc., was lectured by U.S. District Court Judge Henry H. Kennedy Jr. about the powerful combination of temptation, greed and access to information - and the consequences of then lying about what he had done.

"Dr. Tsao, in my view, as bad as insider trading was - and it was bad - the perjury, the lying ... strikes at the heart of the government's mission, and it simply cannot be tolerated," Kennedy said just before handing down the sentence.

Tsao's case contained two parallels with the unrelated case of now-imprisoned domestic guru Martha Stewart: The charges against both involved inquiries into questionable trading in the same stock, that of biotechnology company ImClone Systems. And both were prosecuted criminally and sentenced to prison less because of insider trading accusations and more because they were found to have lied about their trading activities to Securities and Exchange Commission investigators.

Tsao, 44, was accused of insider trading on three occasions between September 1999 and December 2001, each after learning about confidential business negotiations involving his employer and another company. He bought shares in MedImmune, U.S. BioScience Inc., Aviron and ImClone Systems Inc. According to the government, he tried to hide his transactions - from which he netted less than $175,000 - by placing them over the Internet from an account he had opened in the name of his father, a retired sea captain who lives in Taiwan.

He was charged with one count of securities fraud and one count of perjury, and pleaded guilty to both in a deal with the government. Federal sentencing guidelines suggest a maximum sentence of 15 years for the combined convictions.

Saying his actions were the result of "greed and the desire for money," Tsao apologized to the court, calling this a hard-learned life lesson, and adding that he still has the rest of his life to "make this right."

But his promising career is now uncertain, and his finances are in shambles. He owes the Internal Revenue Service about $1 million, and has been ordered to pay the SEC more than $500,000 in fines and restitution as part of an earlier settlement of a civil case. As part of the settlement, he is permanently banned from serving as a director or officer of a publicly traded company.

'Success story'

The father of two boys ages 8 and 3, Tsao was described as a loving father in many of the 29 letters of support that poured into the court. He's a compassionate man, they said; a brilliant scientist, a humble and shy person.

"[He's] an American success story," Tsao's attorney Richard Rossman told the court, "at least up until the events unfolding here today."

Tsao came to the United States 21 years ago from Taiwan. He learned English, earned several degrees and eventually began a career as a scientist, joining MedImmune in 1992. He became a vice president in 2000. The last position he held at the company was vice president for process and manufacturing sciences.

Rossman said Tsao was instrumental in developing MedImmune's Synagis, a treatment for respiratory infection in infants, from which the company derives most of its about $1 billion in annual revenue.

But the prosecutor, Assistant U.S. Attorney Jonathan R. Barr, drew a very different picture of Tsao.

"He was above the law ... it did not apply to him," Barr said, claiming Tsao had an arrogance fueled by his educational background, his position in society and his scientific contributions. "He believed he wasn't held accountable to the rules."

In handing down his sentence, the judge said Tsao should have known better.

People who are privileged and smart "should understand that they cannot break the rules. They cannot, and if they do, they will be punished" like everyone else, Kennedy said.

Tsao's attorney had earlier asked for leniency and probation.

After the sentencing, Tsao embraced his wife, Ling-Ling Tsao, who was sitting in the front row next to a representative from her church.

Ling-Ling Tsao had testified before the SEC and supported her husband's story that she - and not he - had placed the trades, Kennedy said. She was not charged in the case. "I'm afraid you will also have to bear the responsibility of getting your wife involved in this criminal conduct," the judge said to Eric Tsao.

Although Tsao left MedImmune several months ago, his former boss, Gail Folena-Wasserman, came to the sentencing to support Tsao, hugging him when it was over.

New employment

A representative from his new job showed up as well: Hugo Santos, vice president for human resources at Tanox Inc., a Houston biopharmaceutical company to which Tsao has been a consultant since September. He makes $10,000 a month plus stock options.

After the hearing, Santos said Tsao would be welcome back once his sentence is complete.

"Oh yeah, absolutely," Santos said. "He has skills and capabilities that the company values."

Steve Sievert, a spokesman for Tanox, confirmed Tsao's work with the company but added that Tsao "is not an employee of Tanox and will not be offered permanent employment as part of his consulting agreement with us ... and Mr. Tsao has no policy-making, decision-making or financial authority within the company. He is advising us on discrete manufacturing issues only."

MedImmune declined to comment, though an analyst who follows the company said it is likely to come out unscathed.

"It's not going to have any bearing on the company. It's an unfortunate circumstance," said Hamed Khorsand of BWS Financial in California. "But I don't think the market should base the stock in the company on something a former executive has done - specifically inside trading."

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