2017-05-24 13:12:03
Five Accused of Trading Illegally on Health Policy Leaks

Federal authorities charged five people, including three who worked for a New York hedge fund, with insider trading in shares of several health care stocks using confidential information passed on by a health care consulting firm.

Three current and former partners at Deerfield Management, a health care hedge fund firm, paid an employee of the Washington health care consulting firm to provide inside information about policy decisions at the Centers for Medicare and Medicaid Services, or C.M.S., a move that led to millions of dollars in illegal profits, according to federal prosecutors in New York and securities regulators.

David Blaszczak, a former employee at C.M.S. and founder of Precipio Health Strategies, was accused on Wednesday of pumping a friend at C.M.S. for market-moving information that he then passed along to the three partners at Deerfield, according to an unsealed indictment.

Two of the partners, Rob Olan and Ted Huber, were named in the indictment on Wednesday and are listed on Deerfield’s website as partners. Jordan Fogel, who worked at Deerfield from 2006 until last year, was charged separately and pleaded guilty this month.

A representative at Deerfield did not immediately respond to a request for comment.

Mr. Huber’s lawyer, Barry Berke, said in a statement that his client denied wrongdoing and that “his research was based on detailed and rigorous analysis as well as the type of information regularly and properly relied upon by institutional investors in evaluating health care and medical companies.”

Federal prosecutors in New York contend the scheme generated about $3.5 million in illegal profits. The Securities and Exchange Commission filed a separate civil action, alleging that the information led to $3.9 million in illegal profits.

Mr. Blaszczak used a friend and former colleague, Christopher Worrall, a senior staff member at Centers for Medicare and Medicaid Services, as his insider, who would communicate “material, nonpublic information” about the agency’s rate decisions through text messages, telephone calls and in-person meetings, including ones at the agency’s offices, according to the S.E.C.

Mr. Blaszczak would pass along the information to his hedge fund clients, sometimes within minutes of the communications, prosecutors said.

The information allowed Deerfield Management to reap more than $3.9 million, according to the agency. The hedge fund is not named in the S.E.C.’s complaint but Jordan Fogel, who is named as one of Mr. Worrall’s clients, worked at Deerfield at the time.

A biography for Mr. Olan still posted on Deerfield’s website Wednesday morning described him as “partner on the devices team at Deerfield since 2002,” who provided “extensive research and analysis on individual companies operating in the healthcare industry.”

Mr. Huber’s biography, which is also still posted on the website, described him as a partner who “provides extensive research and analysis on individual companies operating in the healthcare industry.”

In his interactions with the men at Deerfield, Mr. Blaszczak would brag about his access to inside information, at one point telling Mr. Fogel that a competitor “doesn’t know anyone at cms. His guesses are just wild random guesses,” according to the S.E.C. complaint

Mr. Blaszczak was paid $193,000 for his information over the course of a year and a half and helped Deerfield make $3.9 million in ill-gotten gains from the trading of at least four stocks, according to the agency.

Mr. Blaszczak’s name surfaced this year in the trial of Stefan Lumiere, a former Visium Capital Management, in a securities fraud trial. Christopher Plaford, a witness at the trial, testified that Mr. Blaszczak provided him with confidential information that he used to make trades in two stocks.

Mr. Lumiere in January was convicted on securities fraud charges of mismarking assets held in a Visium portfolio. The charges against Mr. Lumiere arose from a broader investigation into allegations of insider trading at Visium, a hedge fund that shut its door in the aftermath of the federal investigation and charges. Mr. Lumiere is the former brother-in-law of the Visium founder Jacob Gottlieb.

But even before Mr. Lumiere’s trial, Mr. Blaszczak had been on the radar of regulators and federal prosecutors. Last summer, The Wall Street Journal reported federal investigators were looking into the activities of Mr. Blaszczak and his firm.

In the Visium case, the authorities said that some at the hedge fund had received inside information about the approval process for drugs from a former Food and Drug Administration employee-turned-consultant.

Mr. Worrall gave information to Mr. Blaszczak because of their friendship and also in exchange for future employment or business opportunities, the S.E.C. said. The agency cited one example, in September 2011, when Mr. Blaszczak introduced his friend to a private health care policy firm, where Mr. Worrall then interviewed for a job. He did not take the job but rather used it as an opportunity to get a $10,000 pay raise.