Authored by Mark Melin via ValueWalk.com,
The New York FBI has cracked another insider trading case, this time involving employees at the $7 billion Deerfield Management, a high-profile hedge fund whose managing partner warned in 2015 against investing in Valeant Pharmaceuticals due to its unsavory pricing practices.
Insider trading allegations: Deerfield accused of accessing improper information
In 2015, with Valeant stock trading over $100 per share, Deerfield’s New York-based Managing Partner Jim Flynn warned of the excesses at Valeant and its incisive drug pricing and distribution schemes. The stock price eventually collapsed under the weight of a federal investigation and is now trading at near $12 per share.
Today Deerfield Management, whose motto on their website is “Advancing healthcare through investment, information, and philanthropy,” finds itself ensnared in a scandal involving the information component of that lofty ideal. Three of its partners, Jordan Fogel, 33, Theodore Huber, 55 and Robert Olan, 46, stand accused of involvement in an insider trading case involving government information. Their case highlights the shadowy world where private consultants are accused of providing hedge funds non-public information.
Three of its partners, Jordan Fogel, 33, Theodore Huber, 55 and Robert Olan, 46, stand accused of involvement in an insider trading case involving government information. Their case highlights the shadowy world where private consultants are used in providing inside information.
Deerfield Management: Government employee provides tip to consultant, who passes it to hedge fund
Prosecutors allege that a former employee at the US Centers for Medicare and Medicaid Services, David Blaszczak, 41, working with a current employee at CMS at his Washington, DC-area consulting firm, provided insider trading information to Deerfield. Blaszczak is alleged to work with Christopher Worrall, 39, who is accused of providing confidential information about potential market moving changes that were taking place inside the unit of the US Department of Health and Human Services.
Worrall, an assistant to the director for CMS, had access to information about the agencies plans that would impact healthcare stocks. Deerfield Management stands accused of garnering more than $3.5 million on such market moving announcements.
In one alleged plan, prosecutors say Deerfield learned about CMS plans to cut certain cancer treatments from its reimbursement mechanism two months before it became public. In that case, Deerfield Management is accused of earning $1.85 million in illegal trading profits, paying Blaszczak’s consulting firm $47,500, which included a $29,000 discretionary bonus.
For the nearly 2% cut of the profits, Blaszczak was charged with 18 counts, including conspiracy to defraud the United States and securities fraud. He could face up to 225 years in prison. Worrall, meanwhile, is charged with 16 counts and could face 210 years in prison.
The hedge fund executives could face 40 years in prison and were charged with defrauding the US government, securities and wire fraud.
Fogel is cooperating with prosecutors and could face more lenient sentencing. Deerfield is reported to be cooperating with authorities while a lawyer for Huber said he “did absolutely nothing wrong” as Olan’s lawyer likewise denied the charges.
Insider trading tipster to consultant: “You’re like a drunk whore to me. Hard to resist. Lol. Let’s talk.”
The tactic of hedge fund using a consultant to potentially insulate themselves from insider trading charges has been a growing tactic in insider trading cases and has been noted by Sheelah Kolhatkar, author of the book “Black Edge,” the tale of insider trading charges against Stephen A Cohen and SAC Capital.
The charges here state:
Just like trading on material nonpublic corporate information can be a federal crime, so can trading based on secret government information, as alleged to have happened here.
In theory, the consultant is used as an intermediary between the hedge fund and those providing insider trading information. The design of the system is said to involve the hedge fund not being exposed to how the information was derived or any involvement in payment made to the insider providing the tip. It is the consultant who recruits and manages the inside tipster.
In court documents, consultant Blaszczak recruited tipster Worrall in 2014 with promises of making $2 million in revenue by the end of the year. Worrall is quoted as responding “You’re like a drunk whore to me. Hard to resist. Lol. Let’s talk.”
Blaszczak had other well-known healthcare hedge fund clients, including Visium Asset Management, which recently shut down amid allegations of improper valuations.
See the original government charges here.
via http://ift.tt/2rmfgO3 Tyler Durden