MANHATTAN (CN) – The SEC claims a French doctor tipped a hedge fund manager to problems with a new hepatitis C drug, and the hedge fund manager used the inside information to dump 6 million shares of stock, avoiding $30 million in losses. The unnamed hedge fund manager dumped all his funds’ share of Human Genome Sciences after getting the tip from Dr. Yves Benhamou, the SEC says.
The SEC wants Benhamou ordered not to do it again – ever.
It claims he tipped the unnamed hedge fund manager with “material negative non-public information concerning HGSI’s clinical trial for the drug Albumin Interferon Alfa 2-a (‘Albuferon’).”
When he did it, Benhamou was “one of five members of a Steering Committee overseeing the Albuferon trial, who, at the same time, had a consulting relationship with hedge funds and other investors that purchased and sold healthcare-related securities,” according to the complaint. “Benhamou provided consulting services to the portfolio manager – and the investment advisors and hedge funds with which the portfolio manager was affiliated – on multiple occasions since at least 2006; indeed, a hedge fund sponsor affiliated with the portfolio manager paid substantial fees to the company for which Benhamou worked as a consultant so that the portfolio manager and others could consult with experts in the healthcare sector. …
“Commencing in November 2007, and on multiple occasions prior to January 23, 2008, Benhamou learned material non-public information about the Albuferon trial that had negative implications for Albuferon’s future commercial potential. He communicated such information to the portfolio manager in violation of his duty to HGSI to keep the information confidential. The portfolio manager knew or should have known that Benhamou served on the trial’s Steering Committee and owed a duty of confidentiality to HGSI, but, nonetheless, he immediately took action to sell the hedge funds’ holdings of HGSI common stock. On key dates prior to HGSI’s announcement of negative news concerning the trial, including minutes before the close of the markets on January 22, 2008, the portfolio manager, acting under the authority delegated to him by the investment advisors for the six hedge funds, caused those hedge funds to sell all of their remaining holdings of HGSI common stock.
“On January 23, 2008, HGSI publicly announced that all patients who had been administered the higher dosage level of Albuferon in its clinical trial would be moved to the lower dosage level due to a safety issue detected during Phase 3 of the trial. The higher dosage level was believed, until then, to have greater commercial potential than the lower dosage. In response to HGSI’s announcement, the market price of HGSI’s common stock fell by approximately 44 percent, to $5.62 a share by the close of the markets that day.
“Overall, the hedge funds sold approximately 6 million shares of HGSI common stock – representing all of their holdings – thereby avoiding at least $30 million in losses. They went back into the market after HGSI made its public announcement and purchased more shares of HGSI common stock, at a reduced price.”
Benhamou, 49, is a liver specialist. He is the only defendant.