The Securities and Exchange Commission today charged a French medical doctor and researcher with breaking securities laws by passing confidential information about a clinical trial that he was involved in to a hedge fund manager.
The hedge fund manager who allegedly traded on the information was not named in the complaint.
The SEC alleges that Yves Benhamou breached his duty of confidentiality to Human Genome Science, Inc. when he illegally tipped non-public negative details about a clinical trial for the drug Albumin Interferon Alfa 2-a (Albuferon) ahead of a public announcement by the company.
"Whether it is news about upcoming mergers, operating results, or as in this case clinical drug trials, passing confidential information to others to give them an unfair trading advantage is illegal," said Robert Khuzami, director of the SEC's Division of Enforcement.
According to the SEC's complaint filed in U.S. District Court for the Southern District of New York, Benhamou was a member of the Steering Committee overseeing HGSI's clinical trial of Albuferon, a potential drug to treat Hepatitis C. Benhamou learned about two serious adverse events, including one death, occurring during the third phase of the trial. HGSI consequently decided to reduce the dosage for the patients in that arm of the trial and publicly announce the changes.
The SEC alleges that Benhamou tipped material, non-public information about the trial to the hedge fund portfolio manager upon learning of each new negative development. While serving on the Steering Committee, Benhamou provided consulting services to the portfolio manager with whom he had developed a friendship over the years. The portfolio manager, based on the confidential information provided by Benhamou, ordered the sale of the entire position of HGSI stock held by six health care-related hedge funds that he co-managed. These sales occurred during the six-week period prior to HGSI's public announcement on Jan. 23, 2008, that it was reducing the dosage in one arm of the trial.
The complaint alleges that, "The portfolio manager knew or should have known that Benhamou served on the trial’s Steering Committee and owed a duty of confidentiality to HGSI, but, nonetheless, he immediately took action to sell the hedge funds’ holdings of HGSI common stock."
As a result of the sales, the hedge funds avoided losses of at least $30 million.
Benhamou is charged with violating the antifraud provisions of the federal securities laws. The commission is seeking a permanent injunction, disgorgement of any ill-gotten gains with prejudgment interest, and a financial penalty against Benhamou.
In a parallel criminal proceeding, the U.S. Attorney's Office for the Southern District of New York today announced a criminal action against Benhamou.