(Story updated at 5:51 p.m. ET)
A former U.S. Food and Drug Administration official has pleaded guilty to tipping off a hedge fund manager to drug developments that allowed the trader to illegally make $25 million in profits from insider trading, the U.S. attorney's office in New York City announced Wednesday.
Gordon Johnston—who was formerly deputy director of the FDA's Office of Generic Drugs and a vice president of the Generic Pharmaceutical Association—hid his role as a hedge fund consultant from a former FDA colleague in order to get confidential information about drug developments, according to the U.S. attorney's office. He then allegedly shared that information with hedge fund manager Sanjay Valvani, who traded in advance of public announcements.
An unnamed former CMS official is also implicated Wednesday in court filings in a separate, but somewhat related scheme.
Attempts to reach Johnston were not immediately successful. A Generic Pharmaceutical Association spokesman said only that Johnston was a vice president from 2003 to 2011 and then was retained as a consultant for another four years, a term that has since expired.
Valvani's attorney, Barry Berke with Kramer Levin Naftalis & Frankel, released a statement Wednesday calling Valvani's prosecution “yet another example of this United States attorney's office stretching the facts and law to try to transform entirely innocent trading decisions into a crime.”
“Sanjay Valvani is an innocent man whose investment decisions were always based on rigorous and entirely appropriate research and analysis, consistent with his high integrity,” Berke said.
The Securities and Exchange Commission also filed civil complaints in federal court Wednesday against Johnston, Valvani and several others over the matter.
According to the U.S. attorney's office, Johnston learned from his former colleague at the FDA that the agency would approve a drug called enoxaparin, a generic version of Sanofi's brand-name drug Lovenox, meant to prevent and treat deep-vein thrombosis and treat acute coronary syndromes. Johnston then told Valvani about the pending approvals.
Johnston also allegedly gave Valvani information in advance of several other FDA announcements, according to the SEC complaint.
The SEC alleges, among other things, that Johnston breached his duties to the Generic Pharmaceutical Association, where he was the association's designated representative to the FDA. In that position, he wasn't supposed to reveal information he learned in relation to the association or its members, according to the SEC.
The SEC also filed a complaint Wednesday against a second hedge fund manager, Christopher Plaford. According to the SEC, Valvani shared the information he learned from Johnston with Plaford, who also engaged in insider trading. The SEC also alleges Plaford benefited from confidential material provided by a former CMS official about an impending cut to Medicare reimbursement rates for certain home healthcare services.
The former CMS official was not named in the complaint. An SEC spokesman declined to comment on the identity of that former CMS official and whether that official has been charged.
Plaford pleaded guilty last week to seven counts, including securities and wire fraud. Johnston pleaded guilty Monday to four counts, including securities fraud and wire fraud.
