A hedge fund manager of Indian origin has been charged with participating in a stock market insider trading scam involving generic drugs that allegedly netted him at least $25 million in profits, according to US authorities.
New York federal prosecutor Preet Bharara, who announced the charges on Wednesday, said that Sanjay Valvani made a deal with a former US drug regulatory official to get "highly confidential" information about pending approval of generic drug applications and used them to make trades, "reaping millions of dollars in illegal profits".
This is the latest instance of Wall Street fraud prosecutions involving Indians, several of whom have faced charges or sentenced to prison terms in recent years.
Valvani, who surrendered to authorities on Wednesday, was a partner at Investment Adviser-A and focused on health care portfolios.
As part of their deal, Gordon Johnston, a former deputy director at the US Food and Drug Administration (USFDA) dealing with generic drugs, gave Valvani inside information about the approval of the generic version of the drug enoxaparin that is used to treat deep vein thrombosis, authorities alleged.
Using that information, Valvani traded on the shares of two companies likely to profit from the USFDA approval and made $25 million in profits and also shared the information with Christopher Plaford, a former portfolio manager at Investment Adviser-A, authorities said.
Both Johnston, who is now a political intelligence consultant, and Plaford have pleaded guilty to the charges against them and are cooperating with the government investigation, officials said. The alleged scam ran from 2005 to 2011, according to them.
The Securities and Exchange Commission (SEC) has separately filed civil charges against Valvani, Johnston and Plaford.
Enoxaparin was originally made by Sanofi-Aventis and marketed under the brand name Lovenox. By 2005, three groups of publicly traded pharmaceutical companies had sought USFDA and one of them was "by a publicly traded pharmaceutical company that had partnered with Momenta Pharmaceuticals, Inc.," prosecutors said.
Momenta said on its website that it had collaborated with Sandoz to produce a generic version of Lovenox, which received USFDA approval in 2010.
Prosecutors said that Johnston was retained by Valvani to provide "political intelligence" about the timing of USFDA's approval of generic drugs and was paid hundreds of thousands of dollars for his consulting work. Johnston used his contacts as a former USFDA official to get the information, officials said.
Valvani is the latest person of Indian origin to face insider trading charges. Rajat Gupta, former CEO of the consultancy company, McKinsey, is the best known of them and was convicted in 2012 on insider trading with Raj Rajaratnam, a hedge fund operator of Sri Lankan origin. Anil Kumar, a former McKinsey employee, pleaded guilty in the same case.
