Three arrested in Japan for insider trading over COVID-19 drug

Tokyo police have arrested three people on suspicion of buying shares in Japanese biotechnology and drug startup Tella Inc. on the basis of undisclosed information on the company’s planned development of a COVID-19 treatment.

The Metropolitan Police Department arrested Toshiaki Kubota, the 53-year-old president of a construction company, and two others on Friday for alleged involvement in insider trading in violation of the Financial Instruments and Exchange Act.

The two others are Heima Yamazaki, a 49-year-old investment advisory company president, and Tsuyoshi Yamamoto, a 43-year-old company executive.

The police suspect that the trio acquired information from an executive of medical equipment developer Cenegenics Japan that the Tokyo-based company and Tella would announce a business partnership to develop a coronavirus treatment. They allegedly bought shares in Tella in April and May 2020.

The suspects had a personal or professional relationship with the executive.

The stock price of Tella on the Tokyo Stock Exchange’s Jasdaq market, which had traded below ¥200, jumped after the drug development plan was announced on April 27, 2020, and rose above ¥2,000 in June the same year.

According to the police, the three suspects earned profits of around ¥9 million to more than ¥30 million by selling their shares at high prices by August that year. They are believed to have used the proceeds mainly for living expenses and operating costs for their companies.

In March last year, the MPD and the Securities and Exchange Surveillance Commission conducted on-site searches at related locations for suspected violations of the law.

Tella had stressed that the COVID-19 drug development was making steady progress, saying in September 2020 that the drug received regulatory approval in Mexico’s state of Hidalgo. But the company revealed in an investigation report in August last year that there was no drug approval system in Hidalgo, admitting errors in its information disclosure.

In October, the TSE designated Tella as an issue requiring a close watch on improvement in internal control and imposed a penalty of ¥20 million on the company for violating the terms of the exchange listing contract.