Beaufort mayor settles insider stock trading case

The mayor of Beaufort has agreed to pay almost $44,000 to settle a case of insider stock trading, the Securities and Exchange Commission said Wednesday.

The SEC alleged William J. Rauch bought shares of Alameda, Calif.-based Advanced Cell Technology Inc., immediately after one of its executives informed him about a breakthrough in embryonic stem cell research that the company was about to disclose publicly.

Rauch was working as a consultant to the biotechnology company at the time.

In a lawsuit filed in federal court in San Francisco, the SEC said Rauch was told Aug. 3, 2006, by the executive that a science journal would be publishing an article on the breakthrough. Rauch then called a securities broker and opened accounts in his name and his children's names on the same day.

Within two weeks, after further discussions with the executive, Rauch purchased more than $11,000 of Advanced Cell stock in his children's accounts.

After the journal article was published Aug. 23, 2006, the company's stock jumped, initially hitting $1.83 a share from 40 cents before settling back to about 96 cents a few days later.

"Even with the price decline, Rauch's potential profit on his stock purchases two weeks earlier, had he sold, was more than $20,000," the SEC said.

Bob Leach, SEC's branch chief in the enforcement division of its San Francisco office, said Rauch sold some of his shares, "but as of June 2008 he continued to hold a majority of the stock."

Leach said insider trading occurs when either a purchase or a sale of publicly traded securities is based on information not available to all investors. He declined to comment on the specifics of the investigation.

In an e-mail message Wednesday, Rauch referred questions to his lawyer but issued a brief statement about Advanced Cell and the SEC probe: "It's a good company doing good work. Settling was simply a matter of practicality."

He settled the case without admitting or denying the allegations. He also agreed to disgorge $20,708 and pay $23,284 in fines and interest.

"This case underscores how important it is for consultants provided with non-public information to be mindful of the duties of confidentiality owed to companies that hire them," said Marc J. Fagel, regional director of the SEC's San Francisco office.

Rauch has served as Beaufort's mayor since 1999, according to the city's Web site. Before moving to Beaufort in 1988 to start a publishing company, he served under New York Mayor Ed Koch in a number of key staff positions, including press secretary.