MANHATTAN (CN) — Partners at the multibillion-dollar hedge fund Deerfield Management made millions trading on inside tips from their political intelligence firm and a source in government, according to an indictment unsealed Wednesday.
Theodore Huber, 55, of Westport, Connecticut, and Robert Olan, 46, of Rumson, New Jersey, are partners at Deerfield, a $7 billion hedge fund specializing in healthcare matters.
Jared Fogel, a 33-year-old principal at the same firm, is cooperating with the government after pleading guilty to a separate information last week.
According to an indictment unsealed Wednesday, the three men made $3.5 million in illegal profits based on information from David Blaszczak, 41, a political-intelligence consultant, and Christopher Worrall, 39, an insider at the Centers for Medicare and Medicaid Services.
Huber, Olan, Blaszczak and Worrall are charged in the 57-page indictment, Fogel only in the information.
“Just like trading on material nonpublic corporate information can be a federal crime, so can trading based on secret government information, as alleged to have happened here,” Acting U.S. Attorney Joon Kim said in a statement.
Prosecutors say the scheme ran from 2012 and 2014, as CMS considered cutting coverage of two kinds of cancer treatments and increasing payments for kidney dialysis.
On July 6, 2012, CMS rolled out the first announcement — prosecutors say Blaszczak had circulated a note to clients predicting it four days earlier.
The indictment shows two CMS staffers marveling at Blaszczak’s prognostications.
“Where does he get his information from?” one staffer wrote. “It is pretty unbelievable and will probably blow up at some point.”
Another staffer replied: “Don’t know but it is obviously someone with access to our impact papers. I just can’t see the motivation for sharing this information. I would doubt someone is trading based on it as [it] would be both a crime and require lying on financial disclosure reports which does not seem worth the risk,” according to the indictment.
Weeks before the kidney dialysis announcement, Blaszczak and Worrall went to a baseball game together, then Blaszczak forwarded Fogel a prediction that mirrored CMS’s internal proposal. Days before the July 1, 2013, announcement, Blaszczak boasted: “I am a beast that cannot be stopped,” the indictment states.
Prosecutors say Worrall was behind both tips to Blaszczak, whose predictions made his clients $1.85 million and then $865,000 in trading profits.
On Aug. 9, 2014, Blaszczak had another come-on, offering Worrall a position as a “part owner” of a political intelligence firm he was starting, according to the indictment.
“I bet we come close to 2 million by end of year,” Blaszczak said, adding that they would “kill it working together.”
“You’re like a drunk whore to me,” Worrall responded. “Hard to resist. Lol. Let’s talk.”
All four men are charged with 10 counts of conspiracy, conversion of U.S. property, securities fraud and wire fraud. Blaszczak faces an additional eight counts and Worrall six more. Jordan faces only six counts.
Their employers’ names are shielded in the indictment, but Deerfield’s name was identified by Bloomberg, which reported that Huber’s attorney denied the allegations against his client.