In what appears as the biggest insider trading case since 2014, an Indian origin hedge fund manager along with his ally and source – a former government official has been charged by the Security and Exchange Commission with criminal cases.

According to SEC, Sanjay Valvani, and another hedge fund manager working in the same firm were arrested after both were found doing insider trading with the help of a former Food and Drug Administration official, who helped them in obtaining nonpublic information from the FDA.

SEC also added that another fund manager; third from the same investment advisory firm was charged with falsely inflating assets in portfolios he managed.

According to SEC, Sanjay Valvani amassed unlawful profit worth $32 million for hedge funds investing in health care securities with the help of Gordon Johnson, a former FDA employee who has over 12 years of experience in the government agency and remained in close touch with his former colleagues.

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Johnson worked as a double agent for a trade association representing generic drug manufacturers and distributors while he was a hedge consultant. This gave him access to confidential information about companies that are deemed to get approvals from the FDI to produce enoxaparin, a generic drug that helps prevent the formation of blood clots.

Johnson allegedly leaked confidential information to Valvani including the details of the conversation that he had with FDI officials, which also includes a very close friend of his during his time in the agency.

Valvani who had information about the companies that will get approval from FDI, traded in advance, before the public announcements and amassed profit. Some of the companies that Valvani traded prior to the public announcement include Momenta Pharmaceuticals, Watson Pharmaceuticals, and Amphastar Pharmaceuticals.

“We allege that Valvani’s formula for trading success was tapping Johnston to abuse his position of trust as a generic industry representative to the FDA and underhandedly obtain confidential information from his friends and former colleagues at the FDA,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “Valvani and his hedge funds made millions by trading on nonpublic FDA drug approval information not available to the rest of the stock market.”

Adding to this, the SEC also indicated another hedge fund manager Christopher Plaford, who was tipped by Valvani on nonpublic information as well as confidential information from a former Centers for Medicare and Medicaid Services official about an impending cut to Medicare reimbursement rates for certain health services.

According to SEC, Plaford who is cooperating with the investigation allegedly made a whopping profit of $300,00 by trading based on the insider information in hedge funds he managed.

In another case filed against Stefan Lumiere, the SEC alleges that he along with Plaford engaged in a fraudulent scheme to falsely inflate the value of securities held by a hedge fund advised by their firm.

“Lumiere allegedly used fake prices to value assets while investors were led to believe the fund was using real prices from independent sources that reflected the market value for those assets,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “Financial professionals who cheat investors and game the system should not expect to get away with it.”

 

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Indian-origin hedge fund manager charged with insider trading in US

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