This Hedge Fund Manager Allegedly Made $32 Million off Insider Information From the FDA
A Visium Asset Management money manager and his source, a former U.S. Food and Drug Administration official who allegedly obtained confidential information from friends at the government office, were charged in an insider trading scheme that reaped $32 million in unlawful profits, the Securities and Exchange Commission announced Wednesday. The Justice Department also brought parallel criminal charges against the pair.
Visium Asset Management’s Sanjay Valvani, 44, allegedly received tips about drug approvals ahead of their public announcement from the former FDA official, Gordon Johnston.
Johnston, 64, who worked at the FDA from 1987 to 1999, became a paid consultant for Visium around 2005. Johnston still had friends in the drug administration from whom he obtained the confidential information while concealing his role as a hedge fund consultant, the docket alleged. Instead, Johnston allegedly said he was doing research, and used his role as the Vice President of the Generic Drug Trade Association for cover.
In one instance, in 2010, Valvani initiated a long position on Momenta Pharmaceuticals (MNTA) and a short position on Sanofi (SNYNF). Shortly there after, the FDA gave approval to Momenta to manufacture enoxaparin, a generic version of Sanofi’s brand name drug, Lovenox. Shares of Momenta rose, and Sanofi’s stock dropped.
“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 in a statement. “Valvani and his hedge funds made millions by trading on nonpublic FDA drug approval information not available to the rest of the stock market.”
In two separate complaints, the SEC also charged two former Visium employees Christopher Plaford and Stefan Lumiere, alleging that the two falsely inflated the value of securities held by the hedge fund. That resulted in what looked like inflated returns on the balance sheets, and higher fees for investment advisor, the SEC said. Plaford and Lumiere were also charged in criminal proceedings by the Justice Department.
“Sanjay Valvani is an innocent man whose investment decisions were always based on rigorous and entirely appropriate research and analysis, consistent with his high integrity,” Barry Berke, Valvani’s attourney, wrote in a statement to Fortune.
Visium, with $8 billion under management, put Valvani on paid leave in April, according to Bloomberg.
Visium’s clients pulled about $1.5 billion from the hedge fund in early May, after it was reported that the SEC was consider insider-trading charges against current, and former employees, the Wall Street Journal reported. The hedge fund is headed by Jacob Gottlieb. The industry at large though, has suffered, with $15 billion in outflows in the first quarter of 2016.
Fortune reached out to Visium, and did not get a response.