Case 2:22-cv-01592-WSH Document 1 Filed 11/10/22 Page 1 of 13
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`UNITED STATES DISTRICT COURT
`WESTERN DISTRICT OF PENNSYLVANIA
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`SECURITIES AND EXCHANGE
`COMMISSION,
`
`Plaintiff,
`
`v.
`RAMKUMAR V. RAYAPUREDDY,
`Defendant.
`
`COMPLAINT
`1592
`22 Civ. _____ ( )
`
`JURY TRIAL DEMANDED
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`Plaintiff Securities and Exchange Commission (the “SEC”) files this complaint against
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`Defendant Ramkumar V. Rayapureddy (“Rayapureddy”) and alleges as follows:
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`SUMMARY
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`1.
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`This case involves insider trading by Rayapureddy and his former work colleague
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`and close friend Dayakar R. Mallu (“Mallu”) in the securities of Mylan N.V. (“Mylan” or the
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`“Company”).
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`2.
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`Between September 2017 and July 2019, Rayapureddy unlawfully tipped Mallu
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`material nonpublic information concerning the Company’s financial results, an acquisition, and
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`at least one drug application approval by the U.S. Food and Drug Administration (“FDA”),
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`knowing that, or recklessly indifferent to whether, Mallu would trade on such information.
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`3.
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`Mallu then unlawfully traded on that information, illicitly gaining at least
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`$7,264,008 while avoiding losses of $703,337.
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`4.
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`In exchange for the tips, Mallu shared a portion of his illicit trading profits with
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`Rayapureddy.
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`5.
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`By engaging in the conduct described in this complaint, Rayapureddy violated
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`Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78j(b)] and
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`Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
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`JURISDICTION AND VENUE
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`6.
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`This Court has jurisdiction over this action pursuant to Sections 21(d), 21(e), 21A,
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`and 27 of the Exchange Act Section 27 [15 U.S.C. §§ 78u(d), 78u(e), 78u-1, and 78aa].
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`7.
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`Venue lies in this District under Sections 21(d), 21A, and 27 of the Exchange Act
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`[15 U.S.C. §§ 78u(d), 78u-1, and 78aa]. Among other things, certain of the acts, practices, and
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`courses of business constituting the violations of the federal securities laws alleged herein
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`occurred within the Western District of Pennsylvania. Rayapureddy resides and works in the
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`Western District of Pennsylvania, and improperly tipped Mallu material nonpublic information
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`about Mylan, a company that is headquartered in the Western District of Pennsylvania.
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`DEFENDANT
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`8.
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`Rayapureddy, age 54, resides in Pittsburgh, Pennsylvania. Rayapureddy was
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`hired by Mylan in 2014, ultimately rising to the rank of Global Chief Information Officer
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`(“CIO”) in January 2016. Rayapureddy holds the same position today at Mylan’s successor
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`company, Viatris, Inc. (“Viatris”). Rayapureddy was a close friend and colleague of Mallu when
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`Mallu was employed at Mylan, and the two remained close friends after Mallu departed the
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`Company.
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`OTHER RELEVANT ENTITIES AND INDIVIDUAL
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`9.
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`Mallu, age 52, lives in Orlando, Florida. Mallu began working at Mylan in May
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`2011. In August 2014, he was promoted to the position of Global Producer Functions IT, and
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`served in that role until he separated from Mylan in March 2017.
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`10. Mylan was a pharmaceutical company registered in the Netherlands with
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`headquarters in Canonsburg, Pennsylvania. Until November 2020, when it merged with Upjohn
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`Inc., Mylan’s securities were registered with the Commission pursuant to Section 12(b) of the
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`Exchange Act and traded on NASDAQ under the symbol “MYL.”
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`11.
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`Pfizer Inc. (“Pfizer”) is a pharmaceutical company incorporated in Delaware and
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`headquartered in New York, New York.
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`12.
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`Upjohn Inc. (“Upjohn”) was Pfizer’s off-patent branded and generic established
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`medicines business, which merged with Mylan in November 2020.
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`TERMS USED IN THIS COMPLAINT
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`13.
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`A stock option, commonly referred to as an “option,” gives its purchaser/holder
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`the option to buy or sell shares of an underlying stock at a specified price (the “strike price”)
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`before a specified time (the “expiration”). Options are generally sold in “contracts,” which give
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`the option holder the opportunity to buy or sell 100 shares of an underlying stock. If the holder
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`does not exercise the option prior to the expiration date, the option expires as worthless.
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`14.
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`A “call” option gives the purchaser/holder of the option the right, but not the
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`obligation, to purchase a security at a specified strike price prior to expiration. Generally, the
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`buyer of a call option anticipates that the price of the underlying security will increase prior to
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`expiration. If the call option’s strike price is above the price at which the underlying stock is
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`trading, the call option is considered to be “out of the money,” because it would be unprofitable
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`to exercise the call and pay more for the stock than the price for which it could be obtained in the
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`market. Conversely, if the strike price is below the then-current market price, the call is
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`considered to be “in the money,” because one could exercise the option, obtain the stock at the
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`strike price, and then sell it at the higher market price for a profit. For a given expiration month,
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`out of the money options are typically cheaper to buy than those that are in the money.
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`15.
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`A “put” option gives the purchaser/holder of the option the right, but not the
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`obligation, to sell a security at a specified strike price prior to expiration. Generally, the buyer of
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`a put option anticipates that the price of the underlying security will decrease prior to expiration.
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`If the put option’s strike price is below the price at which the underlying stock is trading, the put
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`option is considered to be “out of the money,” because it would be unprofitable to exercise the
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`put and sell the stock at a lower price than the price for which it could be sold in the market.
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`Conversely, if the strike price is above the then-current market price, the put is considered to be
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`“in the money,” because one could exercise the option and sell the stock at the higher strike price
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`for a profit. For a given expiration month, out of the money options are typically cheaper to buy
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`than those that are in the money.
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`FACTUAL ALLEGATIONS
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`I.
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`Rayapureddy Learned Material Nonpublic Information
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`16.
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`At all times pertinent to this complaint, through his position at Mylan,
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`Rayapureddy learned material nonpublic information relating to Mylan and its business, financial
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`performance, products, and potential corporate transactions, including the information discussed
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`in more detail in this complaint that he tipped to Mallu.
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`II.
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`Rayapureddy Tipped Material Nonpublic Information in Violation of a Duty Owed
`to Mylan’s Shareholders and the Company
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`17.
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`At all times pertinent to this complaint, Rayapureddy owed a duty to Mylan’s
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`shareholders and the company to maintain the confidentiality of material nonpublic information
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`regarding Mylan.
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`18.
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`On or about October 5, 2014, Rayapureddy acknowledged receipt of Mylan’s
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`Code of Conduct, which specifically prohibited trading in Mylan securities while in possession
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`of material nonpublic information about the Company or causing or recommending others to do
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`so. Additionally, in his employment agreement with Mylan, Rayapureddy agreed not to use or
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`disclose any Mylan confidential information other than in the ordinary course of Mylan’s
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`business and in furtherance of its interests.
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`19.
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`At all times pertinent to this complaint, Mallu knew Rayapureddy was privy to
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`material nonpublic information regarding Mylan.
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`20. Mallu further knew that Rayapureddy was subject to a duty to keep that
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`information confidential because, among other things, Mallu was familiar with Mylan’s Code of
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`Conduct from his time working at the Company.
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`21.
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`Notwithstanding his obligation to maintain the confidentiality of Mylan material
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`nonpublic information, Rayapureddy tipped material nonpublic information to Mallu on at least
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`three separate occasions after Mallu separated from Mylan, knowing that, or recklessly
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`indifferent to whether, Mallu would trade on such information, as set forth in paragraphs 27
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`through 49.
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`22.
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`23.
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`Rayapureddy tipped this information in exchange for a personal benefit.
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`Rayapureddy and Mallu established a meaningfully close personal relationship
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`while working together at Mylan between October 2014 and March 2017.
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`24.
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`The two maintained this friendship following Mallu’s separation from Mylan and
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`at all times pertinent to this complaint. Among other things, Rayapureddy and Mallu regularly
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`spoke on the telephone, messaged each other, and socialized in person in the United States as
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`well as abroad, both before and after Mallu’s separation from Mylan.
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`25.
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`Additionally, the two shared both work and cultural interests, visited each other’s
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`homes, and attended events with one another’s families.
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`26.
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`At all times pertinent to this complaint, Rayapureddy and Mallu also had an
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`understanding that Mallu would share a portion of his trading profits with Rayapureddy in
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`exchange for the material nonpublic information provided by Rayapureddy.
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`A.
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`27.
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`The October 3, 2017 FDA Approval
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`In or around September 2017, Rayapureddy became aware, through his position at
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`Mylan, that Mylan would soon publicly announce that the FDA had approved Mylan’s
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`Abbreviated New Drug Applications for Glatiramer Acetate Injections, which represented the
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`first generic options for Copaxone, a multiple sclerosis treatment.
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`28.
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`Knowing or expecting the announcement to have a positive impact on Mylan’s
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`stock price, Rayapureddy tipped this information to Mallu in September 2017 both in person and
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`during telephone calls so that Mallu could trade on it.
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`29.
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`On September 29, 2017, Rayapureddy informed Mallu by telephone that the
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`announcement would occur soon. That same day, Mallu purchased 1,100 Mylan call option
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`contracts in his brokerage account for $799,945.
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`30.
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`On October 3, 2017, after the market closed, Mylan announced the FDA approval
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`of Mylan’s Abbreviated New Drug Applications for Glatiramer Acetate Injections.
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`31.
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`The following day, Mylan’s share price closed at $37.80, which was $5.27 or
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`16.2% higher than the previous day’s closing price of $32.53. The value of Mallu’s options
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`contracts increased by $691,555.
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`32.
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`During at least one conversation concerning this announcement, Rayapureddy and
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`Mallu confirmed their understanding that Mallu would pay Rayapureddy a portion of his trading
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`profits in exchange for the material nonpublic information Rayapureddy provided.
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`B.
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`The February 26, 2019 Fourth Quarter and Fiscal Year 2018 Earnings
`Announcement
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`33.
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`On January 30, 2019, Rayapureddy became aware, through his position at Mylan,
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`that Mylan would announce financial results lower than expected by the market for the fourth
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`quarter and full year 2018.
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`34.
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`Rayapureddy knew or expected that the financial results would have a negative
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`impact on Mylan’s stock price and, several weeks later, tipped this information to Mallu using a
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`secure messaging and calling application so that Mallu could trade on it.
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`35.
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`On February 26, 2019, after being tipped by Rayapureddy, Mallu paid $949,888
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`to close 1,407 Mylan put option contracts that he had originally written the year before. In other
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`words, Mallu expected Mylan’s share price to decrease and sought to avoid losing money on his
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`existing position.
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`36.
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`Additionally, that same day, Mallu sold 5,502 Mylan call option contracts,
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`earning $3,058,148, and used those premiums to purchase 7,074 Mylan put option contracts,
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`including one series that expired only three days later, for $2,367,103. Mallu made these trades
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`to profit on the decrease in Mylan’s share price that he expected to occur.
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`37.
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`On February 26, 2019, after the market closed, Mylan announced fourth quarter
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`and full year 2018 financial results that were lower than expected by the market. Additionally,
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`the Company projected 2019 guidance below analysts’ estimates.
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`38.
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`The following day, Mylan’s share price closed at $26.01, which was $4.52 or
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`15.06% lower than the previous day’s closing price.
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`39.
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`By closing his existing put option contracts before the announcement, Mallu
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`avoided losses of $703,337.
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`40.
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`Additionally, the negative news announced by Mylan caused the value of Mallu’s
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`newly opened options contracts to increase by $4,298,040.
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`C.
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`41.
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`The July 29, 2019 Merger Announcement
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`On May 2, 2019, the Mylan Board of Directors was contacted by Pfizer
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`management concerning a possible combination of Mylan and Upjohn, Pfizer’s off-patent
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`branded and generic established medicines business.
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`42.
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`On May 8, 2019, representatives of Mylan and Pfizer discussed the possible
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`business combination and the need for each to conduct due diligence in order to evaluate the
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`transaction.
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`43.
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`Over the next several weeks, Mylan granted Pfizer and its advisors access to a
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`virtual data room containing proprietary information about Mylan and its business operations.
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`44.
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`Rayapureddy was involved in integration planning and due diligence for Mylan
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`relating to the transaction with Pfizer and understood that the possibility of a business
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`combination with Pfizer and all related discussions and due diligence was nonpublic,
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`confidential information.
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`45.
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`Rayapureddy tipped Mallu about the impending merger, conveying to Mallu that
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`he believed the merger would be well received and have a positive impact on Mylan’s stock
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`price, and periodically updated Mallu on the progress of the negotiations. Rayapureddy knew
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`that, or was recklessly indifferent to whether, Mallu would trade on such information.
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`46.
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`Rayapureddy and Mallu discussed the transaction several times using a secure
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`messaging and calling application and, in mid-July 2019, Rayapureddy informed Mallu that
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`Mylan would soon announce the transaction with Pfizer.
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`47.
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`On the basis of that information, between July 18, 2019 and July 23, 2019, Mallu
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`purchased 13,003 Mylan call option contracts for $8,412,432.
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`48.
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`On July 29, 2019, before the market opened, Mylan and Pfizer jointly announced
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`that Mylan would merge with Upjohn, Pfizer’s off-patent branded and generic established
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`medicines business, to create a new pharmaceutical company.
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`49.
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`That day, Mylan’s share price closed at $20.78 per share, which was $2.32 or
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`12.57% higher than the prior trading day’s closing price. The value of Mallu’s options contracts
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`increased by $2,274,413.
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`III. Mallu Makes Cash Payments to Rayapureddy in Exchange for Material Nonpublic
`Information Concerning Mylan
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`50.
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`On several occasions following Mallu’s trades, Mallu personally made or directed
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`others to make payments in Indian rupees to Rayapureddy or one or more individuals
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`Rayapureddy designated, in exchange for the material nonpublic information concerning Mylan
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`that Rayapureddy had tipped to Mallu.
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`51.
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`Rayapureddy directed Mallu to make these payments in person, in India, in cash
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`in order to avoid detection.
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`IV. Rayapureddy Violated the Federal Securities Laws
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`52.
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`As detailed above, the information about the announcements Rayapureddy tipped
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`to Mallu was material and nonpublic. A reasonable investor would have viewed the information
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`as being important to his or her investment decision.
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`53.
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`54.
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`As a corporate insider, Rayapureddy owed a duty to Mylan’s shareholders.
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`Pursuant to Mylan’s Code of Conduct, Rayapureddy also owed a duty to Mylan
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`not to tip material nonpublic information to any other person so that they could trade in Mylan
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`securities on the basis of the information.
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`55.
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`In breach of his duty owed to shareholders of Mylan and the company,
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`Rayapureddy knowingly or recklessly tipped Mallu material nonpublic information concerning
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`Case 2:22-cv-01592-WSH Document 1 Filed 11/10/22 Page 10 of 13
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`Mylan’s drug approvals, financial performance, and merger with Upjohn, knowing that, or
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`recklessly indifferent to whether, Mallu would trade on this information.
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`56.
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`Rayapureddy and Mallu knew, or were reckless in not knowing, that Rayapureddy
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`breached this duty by tipping Mallu material nonpublic information concerning Mylan’s drug
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`approvals, financial performance, and merger with Upjohn, while knowing that, or being
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`recklessly indifferent to whether, Mallu would trade on this information.
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`57.
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`58.
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`Rayapureddy and Mallu shared a meaningfully close personal relationship.
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`Rayapureddy received financial payments from Mallu as a “quid pro quo” in
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`exchange for tipping material nonpublic information.
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`59.
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`Rayapureddy received a personal benefit in exchange for tipping material
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`nonpublic information concerning Mylan’s drug approvals, financial performance, and merger
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`with Upjohn to Mallu.
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`60. Mallu knew, consciously avoided knowing, was reckless in not knowing, or
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`should have known that Rayapureddy disclosed the information in breach of that duty and that
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`Rayapureddy received a personal benefit.
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`61. When Rayapureddy tipped the material nonpublic information to Mallu, Mallu
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`assumed the duty to maintain the confidentiality of the information. Mallu breached this duty by
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`knowingly or recklessly trading on the material nonpublic information.
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`62.
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`Rayapureddy knew, or was reckless in not knowing, that it was a violation of the
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`securities laws to tip Mallu material nonpublic information concerning Mylan’s drug approvals,
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`financial performance, and merger with Upjohn.
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`63. Mallu knew, or was reckless in not knowing, that it was a violation of the
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`securities laws to trade on the basis of material nonpublic information concerning Mylan’s drug
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`approvals, financial performance, and merger with Upjohn.
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`CLAIM FOR RELIEF
`Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder
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`The Commission re-alleges and incorporates by reference here the allegations in
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`64.
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`paragraphs 1 through 63.
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`65.
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`By engaging in the conduct described above, Rayapureddy, directly or indirectly,
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`in connection with the purchase or sale of securities and by the use of means or instrumentalities
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`of interstate commerce, or the mails, or the facilities of a national securities exchange, knowingly
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`or recklessly has
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`a)
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`b)
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`employed one or more devices, schemes, or artifices to defraud;
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`made one or more untrue statements of a material fact or omitted to state
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`one or more material facts necessary in order to make the statements
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`made, in light of the circumstances under which they were made, not
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`misleading; and/or
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`c)
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`engaged in one or more acts, practices, or courses of business which
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`operated or would operate as a fraud or deceit upon other persons.
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`66.
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`By reason of the foregoing, Rayapureddy has violated and, unless enjoined, will
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`again violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder
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`[17 C.F.R. § 240.10b-5].
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`WHEREFORE, the Commission respectfully requests that the Court enter a Final
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`PRAYER FOR RELIEF
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`Judgment:
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`I.
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`Permanently restraining and enjoining Rayapureddy from directly or indirectly engaging
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`in conduct in violation of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5
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`thereunder [17 C.F.R. § 240.10b-5];
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`II.
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`Ordering Rayapureddy to disgorge, with prejudgment interest, all ill-gotten gains
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`received, directly or indirectly, from the activities set forth in this Complaint, pursuant to
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`21(d)(5) and 21(d)(7) of the Exchange Act [15 U.S.C. §§ 78u(d)(5) and 78u(d)(7)];
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`Ordering Rayapureddy to pay a civil monetary penalty pursuant to Section 21A of the
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`III.
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`Exchange Act [15 U.S.C. § 78u-1];
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`IV.
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`Permanently prohibiting Rayapureddy from serving as an officer or director of any
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`company that has a class of securities registered under Section 12 of the Exchange Act [15
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`U.S.C. § 78l] or that is required to file reports under Section 15(d) of the Exchange Act [15
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`U.S.C. § 78o(d)], pursuant to Section 21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)];
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`Case 2:22-cv-01592-WSH Document 1 Filed 11/10/22 Page 13 of 13
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`V.
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`Granting any other and further relief this Court may deem just and proper.
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`Respectfully submitted.
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`Dated: November 10, 2022
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`~tf~
`____________________________________
`Christopher R. Kelly (NY 4247722)
`Gregory R. Bockin
`Brendan P. McGlynn
`Matthew B. Homberger
`Christine R. O’Neil
`SECURITIES AND EXCHANGE COMMISSION
`Philadelphia Regional Office
`1617 JFK Boulevard, Suite 520
`Philadelphia, PA 19103
`(215) 597-3741 (Kelly)
`kellycr@sec.gov
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`13
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