Former FDA Official Charged in Alleged Securities Scheme for Tipping Off Hedge Fund

June 16, 2016
By Alex Keown, BioSpace.com Breaking News Staff

NEW YORK – Two hedge fund managers, Sanjay Valvani of Visium Asset Management and Steffan Lumiere, a former Visium portfolio manager, were charged by the U.S. attorney with conspiring with a former U.S. Food and Drug Administration official who had access to generic drug approval information, to commit securities fraud by federal officials.

Manhattan-based U.S. Attorney Preet Bharara said Valvani and Lumiere had an agreement with Gary Johnston, a former FDA official and consultant to Visium, to take pending information about generic drug approval that was not publicly available and have Valvani buy stocks based off that information. The three conspired together for a six-year period, from 2005 to 2011, Bharara said in a statement. The group is accused of making approximately $25 million through the use of the insider information, the U.S. attorney’s office said.

According to the indictment, Valvani tasked Johnston with obtaining highly confidential and material nonpublic information from the FDA about pending generic drug Abbreviated New Drug Applications and related citizen petitions. Part of the ANDA includes a FDA tracking document, which includes estimation timeline and likelihood of approval.

One drug the men were alleged to have made money off of was a generic version of Sanofi ’s Lovenox (enoxaparin), an anticoagulant drug. They used information to determine which generic version was likely to be approved and made investments based on that.

Bharara said Johnston has maintained a friendship with at least one unnamed FDA official who remains employed by the regulatory agency. That friend was one who shared information about the generic drug approvals.

Johnston and Christopher Plaford, a former portfolio manager at Investment Adviser-A, who also executed trades on the information, have both pled guilty, the U.S. Attorney’s office said. Plaford and Lumiere had their own agreement to inflate the value of a fixed income fund they oversaw for Visium. Federal authorities said the duo would receive sham quotes on the stock value from friendly brokers in an effort to mislead investors about the liquidity of the securities, according to the indictment.

“As alleged, Valvani, Johnston, and Plaford conspired to extract highly confidential and tightly guarded information about pending applications for generic drug approvals from the FDA, and traded on such information, reaping millions of dollars in illegal profits. Lumiere and Plaford also allegedly conspired to mismark securities held by their fund, lying to their investors and unjustly enriching themselves in the process,” Bharara said in a statement.

Valvani faces five charges: one count of conspiracy to convert United States property, to commit securities fraud and to defraud the United States; two counts of securities fraud; one count of conspiracy to commit wire fraud; and one count of wire fraud. Valvani pled not guilty in court, Reuters reported this morning.

Lumiere faces three counts: one count of conspiracy to commit securities fraud and wire fraud; one count of securities fraud; and one count of wire fraud. Lumiere did not enter a plea, Reuters reported.

Plaford pled guilty to seven counts: one count of conspiracy to commit securities fraud and wire fraud; one count of securities fraud; one count of conspiracy to defraud the United States and to convert United States property; one count of conversion of United States property; one count of conspiracy to convert United States property, to commit securities fraud, and to defraud the United States; one count of securities fraud; and one count of conspiracy to commit wire fraud.

Johnston pled guilty to four counts: one count of conspiracy to convert United States property, to commit securities fraud, and to defraud the United States; one count of securities fraud; one count of conspiracy to commit wire fraud; and one count of wire fraud. In separate actions, the U.S. Securities and Exchange Commission filed civil charges against Valvani, Lumiere, Johnston, and Plaford.