File photo of Sanjay Valvani (r) seen here with (l-r) Ted Harbert, Lisa Harbert, Philip Courtney, Alyssa “Lady Logic” Saunders, and Harjot Sandhu, attending Urban Arts Partnership at the 15th annual “The 24 Hour Plays On Broadway” after party at BB King, Nov. 16, 2015 in New York. (Nicholas Hunt | Getty Images for Urban Arts Partnership)
An Indian-origin hedge fund manager was charged, June 15, by the Securities and Exchange Commission with insider trading after he reaped unlawful profits of nearly $32 million by trading on pharmaceutical stocks on the basis of tips he received from a former U.S. government official, writes Yoshita Singh. – #Siliconeer @siliconeer #SanjayValvani
Sanjay Valvani, 44, 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 Food and Drug Administration and deceptively obtained confidential information.
In parallel actions, the office of U.S. Attorney for the Southern District of New York Preet Bharara also announced criminal charges against Valvani and Johnston.
In the criminal complaint, Valvani has been charged on five counts including securities fraud, defrauding the U.S. and wire fraud.
The charges also carry a maximum fine of $5 million.
The Securities and Exchange Commission (SEC) alleges that 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.
“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 Ceresney, Director of the SEC’s Division of Enforcement.
Ceresney said Valvani and his hedge funds made millions by trading on non-public FDA drug approval information not available to the rest of the stock market.
The SEC further alleges that Valvani in turn tipped fellow hedge fund manager Christopher Plaford, who is charged in a separate complaint with insider trading on this non-public information.
Plaford allegedly made approximately $300,000 by trading based on inside information in hedge funds he managed.