The shoe finally dropped for Visium Asset Management. One current and two former portfolio managers of the New York hedge fund firm, as well as a government official, were criminally charged on Wednesday for their roles in several securities violations. The four were also separately charged by the Securities and Exchange Commission, which brings civil cases.
According to Preet Bharara, the United States Attorney for the Southern District of New York, Visium portfolio manager Sanjay Valvani was charged with securities fraud and wire fraud connected to an insider trading scheme with Gordon Johnston, a political intelligence consultant and former senior official at the Food and Drug Administration. According to the government, over a six-year period Valvani obtained “highly confidential and material nonpublic information” from the FDA about the agency’s approval of pending generic drug applications. Valvani was also charged with passing certain confidential information to Christopher Plaford, a former portfolio manager at Visium, who was also charged.
Valvani allegedly used this information to trade the stock of two pharmaceutical companies, generating about $25 million in trading profits when the FDA announced its approval of the drugs. Valvani is also accused of tipping off Plaford with the information.
Separately, Stefan Lumiere, a former Visium portfolio manager, was charged with participating in a different scheme with Plaford related to mismarking of securities in a fixed-income fund for which Plaford was the portfolio manager, inflating the fund’s net asset value and overstating the fund’s liquidity. Plaford pled guilty to participating in this scheme as well as another scheme involving another political intelligence consultant. Interestingly, Lumiere is also the sister of Alexandra Lumiere, who last year lost her divorce settlement battle with Jacob Gottlieb, the founder of Visum.
In 2012, Valvani endowed two scholarship funds at Duke University’s Fuqua School of Business through a $250,000 commitment over a five-year period.
Back in March, Visium announced that it was being investigated by the federal government. The $7 billion firm told clients in a March 7 letter that the Justice Department and SEC asked the firm for information from several years ago related to the valuation of certain securities in its credit fund, which was shut down in 2013. Visium also said the Feds asked for information regarding the trading of certain securities, including the use of a consultant who stopped providing services to the firm in 2011.
Shares of hedge fund favorite Bob Evans Farms plunged 9 percent after the casual dining chain issued weak guidance. Its restaurants, which seem to mostly attract an older crowd eating mostly off its low-price senior menu, has been a target of hedge fund activist Sandell Asset Management, the third-largest shareholder. In early March, Sandell reduced its stake to 7 percent.
In a regulatory filing at the time, the New York firm headed by Thomas Sandell said it was “disappointed” the company did not announce a specific plan on its March 2 investor conference call to retain an investment bank that would help develop a plan to separate the Bob Evans Restaurants from its BEF Foods distribution business or devise other ways to boost the stock. Sandell called on the company to “immediately retain” an investment bank, adding it plans to “actively discuss” future board representation with management, the board, shareholders, and other third parties. At the end of the first quarter, Robert Citrone’s South Norwalk, Connecticut-based Discovery Capital Management was the largest shareholder with 9.19 percent of the shares.
Hedge funds, on average, rose by 0.78 percent in May, their third straight profitable month, according to BarclayHedge. The index is up 0.85 percent year-to-date. The best performer among Barclay’s 18 hedge fund indices was the technology index, which was up 2.74 percent. Distressed securities rose 2.14 percent, while healthcare and biotechnology gained 2.30 percent. The equity short bias index lost 1.54 percent in May.