FDA Official And Hedge Fund Managers Charged In Securities Scheme

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FDA Official And Hedge Fund Managers Charged In Securities Scheme

According to federal prosecutors, two hedge fund managers–Sanjay Valvani and Christopher Plaford– conspired with a former U.S. Food and Drug Administration official–George Johnston, who had access to insider information on the fate of generic drug candidates–to profit by committing securities fraud. While employed as Visium Asset Management hedge fund managers, Valvani and Plaford executed stock trades based on insider information from Johnston about generic drug applications, said the prosecution.

Prosecutors also allege Plaford and Stefan Lumiere conspired to inflate the value of a fixed-income fund they were managing for Visium.

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

Valvani was charged with five crimes, including two counts of securities fraud and one count of conspiracy to commit securities fraud and defraud the U.S. Four of the counts each carry a maximum prison sentence of 20 years, while one count carries a maximum sentence of five years.

Lumiere was hit with three counts, including securities and wire fraud charges. He could face up to 20 years in prison for each of the two most serious charges and another five years for the other charge, as well as a maximum fine of $5 million for each fraud count.

Plaford pleaded guilty to seven counts, including several conspiracy and securities charges, with several carrying maximum sentences of 20 years apiece and $5 million fines. Johnston pleaded guilty to four counts, including conspiracy and fraud charges, with three charges carrying maximum sentences of 20 years and $5 million fines.

All four defendants were also hit with separate civil charges from the SEC.

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