Two analysts at Deerfield Capital Management have been charged with generating nearly $4 million in illicit profits for the hedge fund by trading on nonpublic information in advance of market-moving government announcements on Medicare reimbursement rates.
The U.S. Securities and Exchange Commission said Theodore Huber and Jordan Fogel obtained the information from a political intelligence consultant who had been tipped off by a close friend who was a senior employee at the Centers for Medicare and Medicaid Services (CMS).
According to an SEC civil complaint, the Deerfield analysts used the tips to recommend that the firm trade in the stocks of four health care companies whose stock prices would likely be affected by Medicare reimbursement decisions once CMS announced them publicly.
The alleged scheme lasted from at least May 2012 through November 2013 and resulted in more than $3.9 million in profits.
Both the consultant, David Blaszczak, and Christopher Worrall, a health insurance specialist at the Center for Medicare, are named as defendants in the civil case along with Huber and Fogel. All four men plus another Deerfield analyst, Robert Olan, have been charged with securities and wire fraud in a parallel criminal case.
“A federal employee breached his duty to protect confidential information by tipping a political consultant who then passed along those illegal tips,” Stephanie Avakian, acting director of the SEC Enforcement Division, said in a news release. “There’s no place on Wall Street or in our government for such blatant misuse of highly confidential information.”
Prosecutors said the Deerfield analysts encouraged Blaszczak, who had formerly worked as a health insurance specialist at CMS, to obtain confidential information from agency insiders. In exchange for his former colleague Worrall’s tips, Blaszczak allegedly offered to help him find lucrative private sector employment opportunities.
The stocks allegedly traded as part of the scheme included DaVita Healthcare Partners, Elekta AB, Fresenius Medical Care, and Varian Medical Systems. According to prosecutors, Blaszczak was paid more than $263,000 in consulting fees in return for the information he provided to the Deerfield analysts.
Fogel pleaded guilty last week to six criminal counts and is cooperating with the government.