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Hedge Fund Managers and Former Government Official Charged in $32 Million Insider Trading Scheme

(HedgeCo.Net) The Securities and Exchange Commission today announced insider trading charges against two hedge fund managers and their source, a former government official accused of deceptively obtaining confidential information from the U.S. Food and Drug Administration (FDA). A third hedge fund manager working at the same investment advisory firm as the alleged insider traders was charged with falsely inflating assets in portfolios he managed.

The SEC alleges 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 for a dozen years and remained in close contact with former colleagues while working for a trade association representing generic drug manufacturers and distributors. Johnston concealed his separate role as a hedge fund consultant and obtained confidential information about anticipated FDA approvals for companies to produce enoxaparin, a generic drug that helps prevent the formation of blood clots. Johnston allegedly funneled to Valvani the details of his conversations with FDA personnel, including a close friend he mentored during his time at the agency. Valvani then traded in advance of public announcements concerning FDA approvals for such companies as Momenta Pharmaceuticals, Watson Pharmaceuticals, and Amphastar Pharmaceuticals.

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