US prosecutors on Tuesday arrested a French doctor for allegedly engaging in insider trading by leaking confidential information on a clinical drug trial to a hedge fund that allowed it to avoid losses of $30m.
In their complaint, US officials said Yves Benhamou, a doctor at the Pitié-Salpêtrière hospital in Paris, broke securities laws by sharing with a hedge fund manager in 2007-08 negative findings on a clinical test of Albuferon, an experimental drug to treat Hepatitis C then being developed by Human Genome Sciences.
While the complaint does not name the investment firm or the individual manager who received confidential information from Dr Benhamou, people familiar with the matter identified the fund as FrontPoint Partners. Morgan Stanley, which bought FrontPoint about four years ago, recently agreed to reduce its stake in the $7bn fund.
“We are co-operating fully with this investigation,” a FrontPoint spokesman said. “We have placed Dr Chip Skowron on leave pending the outcome of the investigation. We have no further comment at this time.”
Dr Skowron, co-portfolio manager of the FrontPoint Health Care Fund, did not return a call or e-mail seeking comment. The complaint, filed by the US Attorney’s Manhattan office and the Federal Bureau of Investigation, claims Dr Benhamou was a member of the HGS steering committee overseeing the trial, but also received consulting fees from the hedge fund, which, it is claimed, sold its 6m HGS shares after his tip-off and ahead of public disclosure that cut HGS’s price by 44 per cent.
Preet Bharara, US attorney, noted that the investigation was continuing. The Securities and Exchange Commission also filed civil charges against Dr Benhamou.
The case highlights the potential for abuse of commercially sensitive data generated by quoted drug companies, which is shared by a network of external medical advisers ahead of market disclosure.
Hedge funds and financial analysts frequently seek to tap medical experts in efforts to assess the likelihood of drugs in development making it to the market, as new drugs offer the prospect of billions of dollars in revenue for the pharmaceutical companies – or even the collapse of smaller biotech businesses if a drug proves unviable.
Dr Benhamou is listed in public filings as a consultant to other drug companies including Abbott; Bristol-Myers Squibb; Gilead; GlaxoSmithKline; Idenix Pharmaceuticals; Roche; Valeant; and Vertex.
Dr Benhamou, who was arrested on a trip to Boston, will be held in custody ahead of his transfer for a court hearing in New York.
Alongside charges of securities fraud and conspiracy to commit securities fraud, the SEC said it was seeking “disgorgement of any ill-gotten gains with prejudgment interest, and a financial penalty”.
The Financial Times