SEC Charges Hedge Fund Managers in $32m Insider Trading Scheme

The Securities and Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term Commission (SEC) announced today that it has charged two hedge fund managers and their source, a former government official, for deceptively obtaining confidential information from the U.S. Food and Drug Administration (FDA).

A third hedge fund manager employed by the same investment advisory firm as the alleged insider traders was also charged for falsely inflating assets in portfolios that he managed.

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Unlawful Profits

It is alleged that Sanjay Valvani reaped unlawful profits of nearly $32 million for hedge funds investing in health care securities by insider trading on tips he received from Gordon Johnston who worked at the FDA and remained in contact with former colleagues.

Johnston concealed his separate role as a hedge fund consultant and obtained confidential information about anticipated FDA approvals for companies to produce a drug that prevents blood clots.

Johnston allegedly funneled the details of his conversations with FDA personnel to Valvani who then traded in advance of public announcements concerning FDA approvals for leading pharmaceutical companies.

Andrew Ceresney, Director of the SEC’s Division of Enforcement, said: “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. Valvani and his hedge funds made millions by trading on nonpublic FDA drug approval information not available to the rest of the stock market.”

Tipped Fellow Fund Manager

The SEC further alleges that Valvani, in turn, tipped fellow hedge fund manager, Christopher Plaford, who is charged in a separate complaint of insider trading. Plaford reportedly made around $300,000 by trading based on inside information in hedge funds he managed.

In a further complaint against Stefan Lumiere, it was alleged that he and Plaford engaged in a fraudulent scheme to falsely inflate the value of securities held by a hedge fund advised by their firm. Lumiere was said to have 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.

The SEC’s complaints against Valvani, Johnston, Plaford and Lumiere, filed in a Manhattan court, are seeking disgorgement of fraudulent gains plus other penalties as well as permanent injunctions against future violations.