A U.S. Attorneys Office and federal securities regulator have charged three current and former Deerfield Management partners with fraud after they allegedly traded using confidential government information on health care policy.
In separate filings, the U.S. Securities and Exchange Commission and U.S. Attorneys Office for the Southern District of New York said Deerfield analysts Theodore Huber and Robert Olan, along with Jordan Fogel, a partner and analyst at the hedge fund until April 2016, recommended that their firm trade shares of four health care companies based on insider knowledge provided by a paid consultant.
The consultant, David Blaszczak, was a former employee of the Centers for Medicare and Medicaid Services (CMS), the government agency responsible for determining how much money health care companies receive for services covered by the public programs. Blaszczak allegedly obtained market-moving information from his former colleague at the agency, Christopher Worrall, and tipped off the Deerfield partners multiple times, beginning in at least 2012.
The Department of Justice estimated that these trades earned Deerfield more than $3.5 million in profits, while the SEC put the figure as high as $3.9 million. The political consulting firms employing Blaszcza reportedly took in $193,000 over 19 months for his services to Deerfield, according to the SEC. He became close friends with Worrall during their time together at CMS, according to authorities, who saod Worrall passed Blaszczak internal documents detailing planned cuts to cancer treatment and kidney dialysis reimbursements.
A federal employee breached his duty to protect confidential information by tipping a political consultant who then passed along these illegal tips, said Stephanie Avakian, acting director of the SEC Enforcement Division, in a statement. Theres no place on Wall Street or in our government for such blatant misuse of highly confidential information.
The district U.S. Attorneys office said Fogel pled guilty in May to the charges, and was currently cooperating with federal authorities. The four other defendants Huber, Olan, Blaszczak, and Worrall have now been arrested, the attorneys office said Wednesday.
They face multiple counts of fraud charges, with some carrying up to 25 years in prison, as well as possible fines from the SEC.
"Deerfield is committed to maintaining a strict culture of compliance and the highest ethical standards," a spokesman for the firm said in an e-mailed statement. "We are cooperating fully with the governments investigation."