Chattanooga psychiatrist repaying insider trading profits from talks with sister

Psychiatrist repaying insider trading profits

CHATTANOOGA, Tenn. — A Chattanooga psychiatrist accused of insider trading in a complaint involving the former Covansys Corp. has agreed to pay about $770,000 in a Securities and Exchange Commission complaint.

The SEC said in a statement Monday that Dr. Sarath B. Gangavarapu agreed to pay a civil penalty of $361,762 and “his ill-gotten gains” of the same amount, plus interest of $46,408.

The SEC said Gangavarapu bought shares of the information technology company based on telephone conversations with a sister who was married to a Covansys executive officer, just before the Farmington Hills, Mich. company’s purchase by Computer Sciences Corp. in April 2007.

Neither Gangavarpu, his attorney Leigh Roadman, nor a spokesman for the Falls Church, Va.-based CSC answered telephone messages seeking comment Monday.

John Sikora, assistant regional director of the SEC’s office in Chicago, said in a telephone interview that the SEC “takes insider trading very seriously and I think this case reflects that.”

The SEC statement said that while talks were ongoing privately about the company’s plans, Gangavarapu bought more than 54,000 shares of Covansys for more than $1.4 million.

Gangavarapu, 54, spoke frequently with his sister, who is not named in the complaint, and she told him that her husband was in meetings behind closed doors, working extra hours and traveling to India where the company had substantial operations. The complaint also said Gangavarapu’s sister “often confided in him because of their close personal relationship as siblings and based on his professional background as a psychiatrist.”

After learning from her husband that Covansys’ directors would vote the next day on accepting an acquisition offer, Gangavarapu was told by his sister that “by tomorrow, it’s a relief, it will be over.” The day after that call Gangavarapu purchased 37,000 shares for more than $980,000, the SEC statement said. The next day the stock price rose 24 percent.

The complaint said Gangavarapu “knew, or was reckless in not knowing that the information he misappropriated was material and non-public. His purchases of securities based on such information constituted a breach of a duty of trust and confidence that he owed to his sister.”

(This version CORRECTS Corrects Computer Sciences Corp. headquarters to Falls Church, Va.)