Hedge Fund Settles Washington DC Insider Trading Case

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Last week hedge fund, Visium Asset Management agreed to pay more than $10 million to settle SEC insider trading charges that it had traded drug company stocks based on inside tips provided by political intelligence consultants.

Final Visium Settlement

Visium agreed to settle a range of SEC charges by forfeiting $4.7 million in illegal trading profits and paying more than $5.4 million in fines and interest. The company didn’t admit or deny the allegations by the SEC.

In June 2016, Visium announced the liquidation of its Balanced, Equity Alpha, and Institutional Partners funds, and that the firm was selling its Global Fund to AllianceBernstein.  These actions resulted from charges levied by federal prosecutors against current and former Visium portfolio managers for trading on confidential government information about generic-drug approvals.

The SEC also alleged that Visium Chief Financial Officer Steven Ku didn’t properly supervise two hedge-fund employees who were involved with the illicit trades.  Mr. Ku settled with the SEC and agreed to pay a $100,000 penalty, without admitting or denying the allegations.

Deerfield Management Case

In a separate legal case, a jury convicted political intelligence consultant, David Blaszczak, of violating insider-trading rules by obtaining and relaying nonpublic information from the Centers for Medicare and Medicaid Services about coming changes in health-care policy to Deerfield Management employees. Deerfield purportedly paid Blaszczak $832,000 in consulting fees for his work on their behalf.

The jury also convicted Christopher Worrell, the CMS employee who leaked the tips, as well as Robert Olan and Theodore Huber, the Deerfield partners who traded on the information.  The government claimed that these tips were used by Olan and Huber to generate more than $3.5 million in trading profits.

In August 2017, Deerfield agreed to pay $4.6 million to settle U.S. Securities and Exchange Commission allegations that it failed to properly supervise its employees. It didn’t admit or deny the regulator’s allegations.

Our Take

The cases against Visium, Deerfield, Blaszczak, Worrell, Olan and Huber are important for both the hedge fund and political intelligence industries as they mark the first time that the SEC has won an insider trading case against people and/or firms trading on inside information obtained from Washington insiders.  Consequently, these cases establish a legal precedence the industry will need to pay close attention to.

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About Author

Mike Mayhew is one of the leading experts on the investment research industry. In addition to founding Integrity Research, Mike is on the board of directors of Investorside Research Association, the non-profit trade association for the independent research industry, and a frequent speaker on research industry trends and developments. Mike has over thirty years of research industry experience. Email: Michael.Mayhew@integrity-research.com

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