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Zachariah freed of insider trading charges

Last updated on: December 23, 2010 15:58 IST

Zachariah freed of insider trading charges

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Aziz Haniffa in Washington, DC

Thiruvananthapuram-born Dr Zachariah P Zachariah, a prominent cardiologist in Fort Lauderdale, Florida, has been exonerated of all charges in a long-standing US Securities and Exchange Commission insider trading case.

He is arguably the most influential Indian American Republican, a major fundraiser for the Grand Old Party for more than two decades and a close friend of the Bush family.

The SEC's complaint, filed in US District Court for the Southern District of Florida in 2008 had charged Zachariah, with illegal trading in the shares of two unrelated companies three years earlier both of whose shares had risen sharply during acquisitions and that he used inside information to illegally profit to the tune of over $1 million.

The Securities & Exchange Commission alleged that Zachariah, a board member at Miami-based pharmaceutical company IVAX Corporation, began illegally trading in IVAX securities only minutes after he learned that IVAX might be acquired, and then tipped off his brother, Dr Mammen Zachariah, also a Fort Lauderdale cardiologist, who started purchasing IVAX shares.

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Image: Dr Zachariah P Zachariah.

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The SEC's complaint further alleged that the two brothers and Zachariah's friend, Dr Sheldon Nassberg, an endocrinologist, also engaged in illegal insider trading in the stock of an unrelated company, Sarasota-based Correctional Services Corporation, which operates penitentiaries in Florida around the same time as the illegal IVAX trading.

But in her 60-page ruling, US Magistrate Linnea R Johnson in a scathing rebuke to the SEC, said, "The court finds that the SEC has failed entirely to carry its burden of proof on any of its claims that Dr Zachariah engaged in insider trading."

Johnson said, "After a multi-year investigation of trades in two completely distinct companies, after the investigative testimony and depositions of multiple individuals, and after roughly 12 days of a bench trial, the SEC has introduced no direct evidence that Dr Zachariah possessed material, non-public information.'

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While acknowledging that 'a civil enforcement action may be based upon circumstantial evidence as well,' Johnson held that 'however, for every circumstance relied upon by the SEC in this case, there are equally valid and established circumstances that were demonstrated at trial to show that Dr Zachariah's trades in IVAX and CSC were not based on material, non-public information and were not made with scienter (a legal term that refers to 'a mental state embracing intent to deceive, manipulate, or defaud).'

The magistrate in her ruling said, "As a factual matter, the SEC has failed to meet its requisite burden of proof to establish such. Without having insider information to transmit, the coincidence that two other doctors purchased medical stock on the same day is of no moment and evidence of nothing."

Johnson said, "The SEC's faulty logic cannot withstand scrutiny as a matter of law in that before you get to the step of acting on insider information, the SEC would first have to establish that Dr Zachariah was in possession of such information, an allegation the Court finds refuted by the direct evidence of record and the credible testimony at trial."

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SEC assistant regional director Glenn Gordon was quoted as saying that it was too early to say whether his office would appeal Johnson's verdict.

"We are reviewing it," he said.

An elated Zachariah on hearing of Johnson's ruling, said, "I have always had great faith in our justice system, and I knew that I would be fully vindicated in the end.'

He said, "The government has put me through a long ordeal, but I am happy to be able to devote 100 percent of my attention again to my medical practice and to public service."

Zachariah, director of the Fort Lauderdale Heart Institute at Holy Cross Hospital in Fort Lauderdale, was also an erstwhile chairman of the Florida Board of Medicine, to which he was appointed by then Governor Jeb Bush.

He has also been a philanthropist and donated over $1 million to the American Heart Association, and also made generous contributions to the worldwide City of Hope,  Museum of Science and discovery, Nova Southeastern University -- of which he is a trustee -- the Broward PACE Center for Girls -- a nonprofit group that provides alternative educational programs for at-risk girls and numerous other organizations and charities, and civic endeavors.

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Image: American consumers at a mall.
Photographs: Reuters
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In 2000, he donated $2 million to help build the new Heart and Vascular Center at Holy Cross Hospital and was also awarded the Ellis Island Medal of Honor for this philanthropic and leadership activities.

In 1993, the Governor and Cabinet of Florida recognized Zachariah as having 'given of himself and his time to enhance and improve the quality of life for mankind through his untiring efforts on behalf of medicine, health, government and education," and added that 'since the beginning of his career, he has focused his time and attention on improving the lives of his fellow human beings.'

Zachariah, whose friendship with Presidents George H W Bush and his son George W Bush has resulted in his having traveled on board Air Force One on several occasions and also been a regular invitee to the White House and George W's ranch in Crawford, Texas, told rediff.com,

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"I feel so vindicated, but I am still in a state of shock after what I've gone through for the past five years. People have been looking at me funny as if I did something wrong.

"So, this is not just a huge relief that I've been able to clear my name after all of the stress I went through all these years, but by being exonerated in such a unequivocal manner, I feel so vindicated over my decision not to settle out of court but fight the SEC," he said.

"Except for my sons and my cousin, the rest of the universe was advising me to settle because they said there was no way I could win the case. They said, you cannot fight the federal government", Zachariah said.

"But I decided to fight it and thank God, I won."

Zachariah, argued that if he had settled out of court, "There would always have been that cloud of suspicion that I had done something wrong. People would have said, 'He did it and what's why he settled.'"

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His brother and Dr Nassberg were also vindicated by Johnson's ruling, but they had settled one year ago, reportedly paying large undisclosed sums.

Zachariah, who has a private jet, a yacht on which he has entertained many political luminaries, and a lavish home in the exclusive Sea Ranch Lakes gated community on the Intercoastal Waterway, acknowledged that since the SEC charges were filed he has been keeping a low profile and had not hosted any major fund-raisers as he had in the past, including several at his home to which George H W Bush, former First Lady Barbara Bush, Jeb Bush and others had graced.

But he said, with his exoneration he would now get back to hosting these political events and getting back to the player and rainmaker he once was.

Zachariah was represented by former federal judge and US attorney for the Southern District of Florida, Thomas Scott of Colles Scott & Kissane and Curtis Miner, partner in the Coral Gables-based law firm of Colson Hicks Eidson.



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