Former employees at the Centers for Medicare & Medicaid Services used confidential information on Medicare reimbursement changes for radiation treatments and dialysis in a nearly $4 million insider trading scheme, federal prosecutors and the U.S. Securities & Exchange Commission alleged today.
An SEC lawsuit and a criminal complaint accuse political consultant David Blaszczak, founder of Precipio Health Strategies and the one-time colleague at CMS of Christopher Worrall, of feeding inside information on the rate changes from Worrall through Blaszczak to traders at Deerfield Management. The traders – Ted Huber and Jordan Fogel – are accused of using the information to make moves on healthcare stocks affected by the Medicare rate changes, allegedly racking up profits of $3.9 million. Fogel pleaded guilty last week, the prosecutors said.
The trades involved radiosurgery companies Accuray (NSDQ:ARAY), Varian Medical (NYSE:VAR) and Elekta (STO:EKTA B) and dialysis providers DaVita Healthcare (NYSE:DVA) and Fresenius (NYSE:FMS), prosecutors allege.
According to the lawsuit brought by the SEC in the U.S. District Court for Southern New York, from May 2012 through November 2013, Worrall used his position in the CMS director’s office for access to advance notice of reimbursement rate changes.
“In breach of Worrall’s duty to maintain the confidentiality of such information, Worrall communicated specific, material, nonpublic information regarding the rate changes to his close friend and former colleague, Blaszczak, through text messages, telephone calls, and in-person meetings, including meetings at CMS,” according to the lawsuit. “Blaszczak worked at a series of Washington, D.C.-based consulting firms that specialize in providing ‘political intelligence.’ In each instance, Blaszczak provided the material, nonpublic information obtained from Worrall to Huber and/or Fogel, analysts at Adviser A, which was one of Blaszczak’s clients. Fogel and Huber then caused Adviser A to place trades on behalf of certain hedge funds based on this information, yielding over $3.9 million in illegal profits.”
“There’s no place on Wall Street or in our government for such blatant misuse of highly confidential information,” SEC enforcement division acting director Stephanie Avakian said in prepared remarks.