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Updated: June 1, 2020

Moderna's coronavirus vaccine announcement set off a frenzy on Wall Street. Now some are calling for an investigation

Moderna set off a frenzy on Wall Street earlier this month when it announced positive, preliminary results from its coronavirus vaccine trial. As the hype grew, the young biotech company and its leading investor wasted no time capitalizing on the briefly surging stock price.

Even as critics accused Moderna of overhyping the results released on May 18, a series of transactions were executed before its share price fizzled over the next week. The timing of those deals, former SEC officials said, appear to be "highly problematic" and should be investigated for potential illegal market manipulation.

Just hours after revealing the promising vaccine results, Moderna sold 17.6 million shares to the public. That share sale, unveiled after the closing bell on May 18, was priced at $76; Moderna traded at just $48 as recently as May 6. The deal instantly raised $1.3 billion.

Two of Moderna's top executives also cashed in on the boom at their company, which had suddenly amassed a $29 billion market value despite the fact it has no marketed products.

[Read more: CT bioscience companies among global leaders in COVID-19 vaccine, treatment development]

Moderna's chief financial officer and chief medical officer sold nearly $30 million of shares combined on May 18 and May 19. Those stock sales, reported first by CNN Business, were done through frequently used automated insider-trading plans. These plans, known as 10b5-1 plans, lay out future trades at set prices or on set dates to shield executives from accusations they are profiting from confidential information and Moderna says the plans are in line with its policies.

Days later, Moderna's leading shareholder, venture capital firm Flagship Pioneering, sold 1 million shares on May 21 and 22 at an average price of $69.47, according to filings reviewed by CNN Business. The sales raked in $69.5 million for the venture capital firm.

Flagship Pioneering was founded by Noubar Afeyan, the co-founder and chairman of Moderna. The VC firm owned nearly 51 million Moderna shares as of the end of March, according to the most recent filings.

Those sales by Flagship Pioneering were not done through the automated 10b5-1 plans even though the firm is listed as a Moderna insider. Insiders are not necessarily required to trade through such automated plans, though many opt to do so.

By the time the selling was disclosed to the public via securities filings, Moderna's stock price had crashed back to Earth.

Moderna closed at $55.54 on Thursday, down 36% from its peak on May 18 when the vaccine results were announced.

'Highly problematic'

The timing of the transactions -- coupled with concerns from some medical experts that Moderna overstated the significance of its Phase 1 vaccine trial -- should be investigated by authorities, former SEC officials told CNN Business.

"The confluence creates an appearance, which may be inaccurate, that people were in a rush to take advantage of an early positive trial in what is often a long and tortured development of a new drug," Harvey Pitt, the former chairman of the Securities and Exchange Commission, said in an interview.

Pitt, who led the SEC from 2001 to 2003, called the timing of the share sales by Moderna and its leading shareholder "highly problematic." He suggested authorities issue subpoenas for emails, memos and other documents that can shed light on the share sales.

"All of these facts together create an irresistible impetus towards at least finding out what was going on in people's minds before all these transactions," Pitt said.

Thomas Gorman, another former SEC official, said the agency should "absolutely" be investigating the situation at Moderna.

"This isn't really insider trading as much as it's market manipulation," said Gorman, who is now a partner at the law firm Dorsey & Whitney. "It looks like you're hyping the stock so you can then go and sell it."

CNN emailed SEC's headquarters on Wednesday; a spokesperson replied, declining to comment. CNN followed up Friday with an inquiry to the SEC's Boston office, which did not respond. Flagship Pioneering, Moderna's leading shareholder, did not respond to requests for comment.

Afeyan did not respond to a Thursday email from CNN requesting comment.

Moderna defended share sale timing

Afeyan, Flagship's CEO and Moderna's chairman, defended the decision to raise capital on the day of the vaccine press release in an interview with The New York Times. Afeyan said the biotech company's board was considering an offering prior to Monday's announcement, but finalized the decision only late in the day.

"It was based on our looking at the data and concluding that we needed to have our own resources going into develop this vaccine and not simply wait for government grants," he told the newspaper.

In a statement, Moderna said that "as a matter of practice" the company "won't comment on litigations or investigations; nor on purchases or sales by individual investors or groups."

A Moderna spokesman replied to questions about market manipulation concerns by saying the company plans to use the proceeds from the share sale in large part to address the "urgent needs of the COVID-19 pandemic."

Moderna said that the sales made by its executives were done through automated trading plans "in accordance with the company's insider trading policy."

Experts told CNN Business there would only be a legal problem with these insider sales if the executives had created or modified the trading plans while in possession of material insider information.

"It's worth looking into it to understand the nature of the plans and how they were set up," said Pitt, the former SEC chairman.

'The markets eat it up'

It's no secret that Wall Street and the public at large crave a solution to the coronavirus pandemic.

News about potential vaccines and treatments have frequently moved markets -- even if the underlying facts are more nuanced than initial headlines suggest.

That situation plays right into Moderna's track record, a former Moderna executive told CNN Business.

"[Moderna's] behavior is to issue very scant, non-scientific information. And somehow, that's their magic power — is that the markets eat it up," said the former executive, who spoke on the condition of anonymity.

Peter Hotez, a leading expert on infectious disease and vaccine development at Baylor College of Medicine, said he found the results of Moderna's press release "uninterpretable."

"It didn't contain any data," he said. "So basically -- it's opinion. It was spin and opinion."

Investors reacted with euphoria, at least initially. Moderna's share price spiked as much as 30% to $87 on May 18 following the press release.

And Moderna's share sale that raised $1.3 billion occurred at the height of the vaccine excitement.

"The timing is unfortunate," said Pitt. "You want to get the best value, obviously. But you also usually want to let a public announcement percolate before you start doing offerings."

In April, Moderna was awarded up to $483 million from the federal Biomedical Advanced Research and Development Authority (BARDA) to develop and manufacture a vaccine.

Questions about vaccine press release

Moderna's preliminary Phase 1 vaccine-trial release soon came under scrutiny from the medical community.

For one, clinical trials for vaccines typically happen in three phases for safety and efficacy; the process usually takes years. Moderna released partial results from the first phase, which began in mid-March.

"Issuing a press release around Phase 1 data is very unusual," said the former Moderna executive, who left in 2016. "Issuing a press release around partial data from less than half the patients is very, very unusual -- practically unheard of."

The former executive added that much about Moderna's handling of the press release will be revealed when all the results from the trial's first phase are known. at the conclusion of the trial's first phase. If the final Phase 1 results are as promising as the interim results, then the press release will look better in hindsight, the executive said.

In the first phase of the trial -- which is led by the National Institute of Allergy and Infectious Disease -- 45 volunteers received varying doses of the vaccine. When the press release was issued, results were available for eight volunteers on the question of whether the investigational vaccine had produced neutralizing antibodies to the virus. For all eight, the answer was yes: They had developed neutralizing antibodies at levels that exceeded or were on par with levels measured in people who have naturally recovered from Covid-19.

In a written statement to CNN, a Moderna spokesperson stressed that the company's press release was drafted with the help of NIAID officials.

"The company worked cooperatively with NIAID to properly characterize the interim data provided by NIAID," Moderna said.

CNN reached out to NIAID for comment but the agency did not provide one.

Moderna said its release "made clear what data was available" on the first 45 subjects in the trial as well as what was available on the "first eight sentinel subjects." The company added that it told investors on a subsequent call that full results are expected at a future date.

Concerns about small sample size

Still, some scientists have voiced frustration with how Moderna's statement did not reveal specific antibody levels. The metric -- measured in "titers" -- matters in part because the levels of antibodies in recovered Covid-19 patients vary widely.

"You shouldn't have to be in a position to guess that," said Hotez, whose lab is also working on a Covid-19 vaccine candidate using a recombinant protein technology. "For a while I was trying to read between the tea leaves of their statement, and finally I kind of gave up."

Hotez added that other vaccine developers have been more forthcoming about their Covid-19 data, citing, for instance, how Oxford University has posted its findings on an open-access site, and how Chinese researchers published a paper on their vaccine candidate in The Lancet, an academic publication.

"Everybody's doing that except Moderna," he said.

Dr. Paul Offit, director of the Vaccine Education Center at Children's Hospital of Philadelphia, said the sample size in Moderna's release -- eight -- is far too small to draw any meaningful conclusions.

"You are about to give a vaccine to tens of millions of people," he said. "I really wouldn't issue a press release about a number of people who you could invite to a small outdoor barbecue."

Pitt, the former SEC commissioner, said the episode underscores a shortfall of modern financial markets.

"It's part of the problem with our securities markets that, particularly given their volatility, it is possible for people to make enormous profits and gains based on relatively nothing of lasting substance," Pitt said.

Afeyan's old biotech company misstated results

Before he started the VC firm Flagship Pioneering, Afeyan served as the CEO of PerSeptive BioSystems, a biotech equipment maker he founded.

In December 1994 with Afeyan leading the company, PerSeptive BioSystems admitted to misstating financial results for nearly two fiscal years, according to a Boston Globe article at the time.

The admission set off a flurry of lawsuits against PerSeptive accusing the company of issuing false statements in an effort to boost sales of its stock and inflate the price, the paper said.

Afeyan denied the allegations to the Boston Globe at the time, calling them "completely false."

SEC filings show that PerSeptive took charges of $15.5 million in 1995 linked in part to settling shareholder litigation related to the restated results.

Afeyan sold off most of his stake in PerSeptive, which went public in mid-1992, before the stock fell during the controversy, the Boston Globe reported.

The race to develop a vaccine

Dr. Amesh Adalja, a senior scholar focused on emerging infectious disease at the Center for Health Security at Johns Hopkins University, said while he felt the initial exuberance in the press about Moderna's vaccine was perhaps premature, he found the results encouraging.

"It's moved the needle a little bit for me -- I think that it shows that it's safe," he said. "I anxiously await Phase 2 trial data, which is much more useful to us in trying to demonstrate whether or not this vaccine will ultimately be effective."

(Moderna announced Friday that it had dosed the first patients in Phase 2, which is expected to include 600 participants.)

Adalja said he understands why Moderna may have felt compelled to publicize the encouraging results.

"I think that there likely is a lot of pressure on vaccine developers to release information as quickly as possible because of the fact that we know that the only way back to any kind of normalcy is through a vaccine," he said. "There are I think a lot of incentives to try and amplify good news when most things that we care about in the pandemic are bad news."

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