Hedge Fund Manager Accused of Insider Trading

The manager traded in advance of FDA announcements approving the sale of generic drugs.
Matthew HellerJune 16, 2016
Hedge Fund Manager Accused of Insider Trading

A partner at hedge fund Visium Asset Management has been charged with making nearly $32 million in illicit profits by trading in health-care stocks based on insider tips from a former government official.

The U.S. Securities and Exchange Commission said Sanjay Valvani’s collaboration with Gordon Johnston, a “political intelligence” consultant and former senior official at the Food and Drug Administration, enabled him to trade for Visium funds in advance of FDA announcements approving the sale of generic drugs.

The stocks in which Valvani allegedly traded included Momenta Pharmaceuticals and Watson Pharmaceuticals. Johnston is accused of concealing his role as a hedge fund consultant and obtaining confidential information from his FDA connections about anticipated approvals for companies to produce enoxaparin, a generic drug that helps prevent the formation of blood clots.

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Valvani, 44, pleaded not guilty Wednesday to parallel criminal charges. According to the SEC, he passed some of Johnston’s tips to Christopher Plaford, a then-Visium portfolio manager who allegedly made about $300,000 in insider trading profits.

“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,” Andrew J. Ceresney, director of the SEC’s Division of Enforcement, said in a news release.

The SEC said in a civil complaint that Visium hired Johnston in 2005 to advise it about, among other things, the FDA’s pending review of enoxaparin. According to prosecutors, Valvani directed him to “gather confidential and material nonpublic information from FDA employees about the FDA’s consideration of the enoxaparin” new drug applications.

Valvani allegedly made about $24.8 million for Visium after the FDA in 2010 announced it had approved Momenta’s application.

According to Reuters, a lawyer for Valvani accused prosecutors of “stretching the facts and law to try to transform entirely innocent trading decisions into a crime.” Barry Berke said his client was “an innocent man whose investment decisions were always based on rigorous and entirely appropriate research and analysis.”

Johnston and Plaford have both pleaded guilty in the criminal case and admitted to participating in insider trading.