Loose lips can sink stocks.

And when scientific publications circulate advance copies of crucial studies to hundreds or thousands of people, including doctors, journalists and academics, there are plenty of mouths to whisper about findings that may affect a company's shares -- before those outside the loop get the word. 

The Chicago Board Options Exchange is investigating "unusual trading activity" in options on shares of Wyeth, the pharmaceuticals giant based in Madison, N.J., which experienced a sharp increase in trading volume early this month. The uptick occurred days before the release of a government study by the Journal of the American Medical Association that documented a heightened risk of breast cancer, coronary heart disease, strokes and blood clots for women taking Wyeth's hormone-replacement drug Prempro for many years.

The findings made headlines across the country July 9, when several news outlets broke a JAMA embargo that was supposed to keep the result under wraps until a news conference in Washington that morning. As soon as the stock market opened, Wyeth shares sank, closing down 24% in heavy trading. Veteran traders say the trend in options purchases beforehand raises the question of whether someone with advance knowledge of the study's contents placed improper bets that Wyeth's stock would fall.

A spokesman for Wyeth says the company is "not aware of any trading by insiders or others in advance of the news." Wyeth learned the results of the study the previous week in a meeting with the National Institutes of Health, which conducted the research, but refrained from answering reporters' requests for interviews until after the market closed on July 8 to "lessen the chances of any improper trading."

Officials at the CBOE won't comment on whether the Wyeth probe is related to the July 8 trading session, the last one before the study results came out, but say investigations of unusual trading patterns are routine.

Leading journals use embargoes to give journalists time to analyze and report on complex scientific studies. The embargoes are also coordinated with delivery of the journals to subscribers, allowing doctors to review the material before their patients hear about it from the lay media. Finally, even before the studies are ready for print, the doctors and scientists who performed them or reviewed them for publication are privy to the results.

BAD NEWS TRAVELS FAST   A recent report in the Journal of the American Medical Association that a major study of hormone replacement therapy had been halted out of health concerns sent the manufacturer's stock plunging. Many people were privvy to that news before it was officially announced:   Early April: Study coordinators first notice elevated risk of heart disease and other problems for women taking Wyeth's HRT drug, Prempro, but decide to wait for more solid results.   May 31: Armed with more data, officials decide to halt the study.   July 5: Letters are sent to women enrolled in the study, timed to arrive before the public announcement.   July 8: The National Institutes of Health and JAMA send out press releases to the media outlining the results: by 9 a.m., a science and medical Web site alerts journalists. All sources say the news is embargoed until 9 a.m. the next day. Volume in Wyeth stock options jumps to more than twice the daily average.   July 9: Several media outlets carry news of the study in their morning editions before the 9 a.m. embargo. By the end of the day, Wyeth's shares fall more than 24%.   July 11: The Chicago Board Options Exchange confirms a "routine investigation of unusual trading activity," but won't specify what triggered the probe.

An honor code is supposed to prevent the leaking of results. But the wide number of people with preferential access to information raises the possibility of trading for personal gain whenever there's a major study with clear implications for a company's shares.

"The potential for abuse is there," says Catherine DeAngelis, JAMA's editor. "My problem is that I'm a journal editor. I'm trying to get the best articles, and I'm trying to get the information into the hands of physicians before their patients start calling." She asked herself in the wake of the Wyeth embargo break if she could have done something to improve the embargo system and concludes: "There's nothing I can do differently."

The system for embargoing important scientific and medical news has been in place for decades, but the frenetic search for an investing edge may have overtaken the limited safeguards intended to corral coverage by the lay press. In addition, the number of people privy to special information has grown as more news outlets make medical stories a coverage staple.

The New England Journal of Medicine, like JAMA, relies on embargoes to facilitate "an orderly release of medical research information," says Gregory Curfman, executive editor. He acknowledges that market issues do crop up from time to time, such as a study involving important drugs, but he emphasizes the journal's lack of interest in the commercial implication of its work.

"We don't talk to analysts," he says. "We have so little interaction with the business end of all this, and we kind of like it that way."

But Dr. Curfman agrees there are opportunities for leaks. Authors learn the publication date for their papers several weeks before they run. Dr. Curfman says the journal relies on their professional integrity to guard the information. However, he adds, if the study is sponsored "by a drug company, who's to say the author won't tell the drug company? Somebody who wants to do it can probably do it. We're not up here to be the FBI."

Traders and analysts say it is difficult to determine if the opportunity for trading has led to wrongdoing -- the Wyeth options trading being a case in point.

Jerry Wang, market strategist for Bernie Schaeffer Research, which tracks intraday options volume, says he didn't notice any large block trades in Wyeth in the days immediately before the announcement. Such trades would point to a single investor betting aggressively against the stock. But the absence of one big transaction doesn't obviate smaller trades that might have escaped the CBOE's attention.

The incentive for small investors can be quite high. Someone who held even 100 of the $50 puts -- a modestly sized block trade that was the largest single transaction Mr. Wang could confirm -- could have exercised the options at that price to sell 10,000 shares of stock immediately after the study results were published, bringing in $127,000 in profit.

Because the potential rewards are large, even small bits of information can be tempting. In April, a month before the annual meeting of the American Society of Clinical Oncology, a computer glitch revealed thousands of research summaries, or abstracts, to members who knew where to look a month before the full results were to be presented.

Many of those abstracts quickly circulated among investors and analysts. One described human tests of a experimental Genentech Inc. cancer drug called Avastin, which strangles the blood supply to tumors. Though sketchy, the abstract revealed that a patient in the study had suffered a dangerous type of blood clotting. Genentech's stock fell 13% the day the news got out.

Bound by ASCO embargo rules that prevent companies from discussing research until it is formally presented at the conference, however, Genentech officials couldn't comment beyond expressing their "trust" in ASCO's peer-review process. The company's shares remained depressed until the meeting, when many investors seemed reassured by the full results that Avastin's side effects weren't so serious after all.

Investors who benefited from the release of the Avastin abstract did so largely because of their ability to exploit ASCO's Web security. But ASCO routinely gives its physician members access to the abstracts a month before reporters or companies are permitted to comment on the data. While ASCO sends its members a confidentiality policy emphasizing that the information is strictly for personal and educational use, its officials say they have no way to enforce it.

In the wake of the April disclosure, ASCO has studied its abstract policy, and some company officials are gently urging a need for reform.

"We certainly understand the public's interest in and right to have quick access to the data," says Gwen Fyfe, Genentech's senior director of oncology, during an interview at the ASCO meeting in May. "Almost as soon as the abstracts go online, there should be ability to discuss them."

Write to Scott Hensley at scott.hensley@wsj.com⁵, Peter McKay at peter.mckay@wsj.com⁶ and David P. Hamilton at david.hamilton@wsj.com⁷

Updated July 25, 2002 11:59 p.m. EDT