Robert Khuzami, the Attorney for the United States, Acting
Under Authority Conferred by 28 U.S.C. § 515, announced today that DAVID
BLASZCZAK, a political intelligence consultant, was sentenced to 12 months and
one day in prison; CHRISTOPHER WORRALL, a government employee at the Centers
for Medicare and Medicaid Services (“CMS”), was sentenced to 20 months in
prison; and THEODORE HUBER and ROBERT OLAN, two partners and analysts at
Deerfield Management Company, L.P., a healthcare-focused hedge fund in New
York, New York (“Deerfield”), were each sentenced to 36 months in prison, respectively,
in connection with their convictions following a four-week jury trial.
BLASZCZAK, WORRALL, HUBER, and OLAN each participated in a
scheme to obtain confidential information from CMS, which was then used execute
profitable trades at Deerfield. Specifically,
as part of the scheme, BLASZCZAK obtained confidential and nonpublic
information from CMS employees, including his friend, CHRISTOPHER WORRALL, who
worked at CMS, and who breached his duties as a CMS employee by providing
confidential information to BLASZCZAK.
BLASZCZAK then provided this material nonpublic information in advance
of market-moving CMS announcements to employees at Deefield, including HUBER,
OLAN, and Jordan Fogel, who recommended trades on the basis of the
information. Fogel, a former partner and
analyst at Deerfield, previously pled guilty and is cooperating with the
Government. As a result of these trades,
Deerfield reaped more than $7 million in profits.
In a separate scheme, BLASZCZAK also obtained confidential
and nonpublic CMS information about cuts in CMS’s reimbursement rates for home
health providers, and provided that information to Christopher Plaford, a
portfolio manager at Visium Asset Management, L.P., another healthcare-focused
hedge fund in New York, New York (“Visium”).
Plaford then used BLASZCZAK’s information to execute trades, resulting
in approximately $330,000 in profits.
Plaford has previously pled guilty to this conduct and is also
cooperating with the Government.
Deputy U.S. Attorney Robert Khuzami said: “Blaszczak, Worrall, Huber, and Olan
conspired to steal highly sensitive and confidential government information and
profit from that theft. This scheme was
carried out through Blaszczak’s purported ‘political intelligence’ firm, but
nothing about this scheme was intelligent.
When you steal confidential information from the Government and use it
to make illicit millions in the stock market, you will get caught.”
According to the allegations in the charging documents, the
evidence and testimony at trial, and statements made in court proceedings:
CMS
CMS, a component of the United States Department of Health
and Human Services (“HHS”), administers Medicare and Medicaid, among other
things. CMS is also responsible for
setting Medicare reimbursement rates for healthcare providers. CMS spends more than $1 trillion annually and
pays approximately one-third of the country’s health expenditures. Accordingly, CMS rulemaking decisions,
including decisions that affect how much the federal government will pay to
reimburse medical providers for services rendered, have a substantial,
market-moving impact on publicly traded companies that depend on government
healthcare spending.
WORRALL began working at CMS in or about 1999. Beginning in January 2012, WORRALL worked in
the Director’s Office for the Center for Medicare (“CM”), which gave WORRALL
broad access to CMS’s confidential deliberations about upcoming reimbursement
decisions. WORRALL also served as a project
manager for a confidential CMS database that contained CMS’s most up-to-date
claims data that CMS used to inform its decision-making.
David Blaszczak
At all relevant times, BLASZCZAK served as a consultant at a
number of Washington, D.C.-based firms that, in exchange for a fee, provided
so-called “political intelligence,” which included analysis about how changes
in Government reimbursement rates would impact publicly traded
healthcare-related companies. Before
becoming a political intelligence consultant, BLASZCZAK worked at CMS, eventually
serving as a special assistant to the CMS Administrator. BLASZCZAK met WORRALL while the two worked at
CMS.
As a former CMS employee, BLASZCZAK was well aware of CMS’s
rules governing the dissemination of nonpublic information.
Deerfield Management Company, L.P.
At all relevant times, Deerfield managed multiple hedge
funds specializing in healthcare-related investments. As of 2017, Deerfield had more than $7
billion in assets under management.
HUBER, OLAN, and Fogel were partners and analysts at Deerfield, where
their job was to analyze investment decisions and recommend potentially
profitable trades for Deerfield.
Deerfield’s compliance manual prohibited its employees from committing
insider trading.
The Scheme to Convert and Use Confidential CMS Information
The Scheme
From at least in or about 2009 through in or about 2014,
BLASZCZAK, WORRALL, HUBER, OLAN, Fogel, and others participated in a scheme to
convert to their own use confidential and material nonpublic information from
CMS concerning, among other things, CMS’s internal deliberations regarding
coverage and reimbursement decisions.
During this time period, Deerfield retained BLASZCZAK as a
consultant who provided political intelligence related to, among other things,
the content, likelihood, and timing of CMS reimbursement decisions. As part of the scheme, HUBER, OLAN, and Fogel
encouraged BLASZCZAK to obtain confidential and material nonpublic information
from CMS insiders. As HUBER, OLAN, and
Fogel knew, these CMS insiders included BLASZCZAK’s former colleagues with whom
he had close personal relationships, who were prohibited from disclosing such
information to CMS outsiders.
BLASZCZAK obtained material nonpublic information from his
close friend and former CMS colleague WORRALL.
BLASZCZAK and WORRALL were friends since their time working together at
CMS. BLASZCZAK also frequently offered
to help WORRALL find lucrative private sector employment opportunities, in
exchange for WORRALL giving BLASZCZAK confidential government information.
BLASZCZAK conveyed the information obtained from WORRALL to
HUBER, OLAN, and Fogel, who – knowing that BLASZCZAK had obtained the
information improperly from a CMS insider – used the information to trade. In exchange for being provided with this inside
information, HUBER, OLAN, and Fogel caused Deerfield to pay BLASZCZAK more than
$800,000 in consulting fees.
The Verdict
The jury found BLASZCZAK guilty of 10 counts, HUBER and OLAN
guilty of five counts each, and WORRALL guilty of two counts. Specifically, with respect to Count One
(conspiracy to convert government property, to commit securities fraud, and to
defraud the United States relating to Deerfield) and Count Two (conspiracy to
commit wire fraud and securities fraud relating to Deerfield), the jury found
BLASZCZAK, HUBER, and OLAN guilty. With
respect to Count Three (conversion of government property) and Count Nine (wire
fraud), the jury found all four defendants guilty. With respect to Count Ten (securities fraud),
the jury found BLASZCZAK, HUBER, and OLAN guilty. With respect to Count
Thirteen (conversion of government property), Count Fifteen (wire fraud), Count
Sixteen (securities fraud), Count Seventeen (conspiracy to convert government
property and to defraud the United States relating to Visium), and Count
Eighteen (conversion of government property), the jury found BLASZCZAK guilty
on each count.
*
* *
In addition to his prison sentence, BLASZCZAK, 42, of Isle
of Palms, South Carolina, was sentenced to two years of supervised release,
including one year of home confinement, and ordered to forfeit $727,500 and pay
restitution to CMS in the amount of $1,644.26.
WORRALL, 40, of Linthicum Heights, Maryland, was sentenced
to one year of supervised release, and ordered to pay restitution to CMS in the
amount of $1,644.26.
HUBER, 56, of Westport, Connecticut, was sentenced to two
years of supervised release, and ordered to forfeit $87,078, pay restitution to
CMS in the amount of $1,644.26, and pay a fine of $1.25 million.
OLAN, 47, of Rumson, New Jersey, was sentenced to two years
of supervised release, and ordered to forfeit $98,244, pay restitution to CMS
in the amount of $1,644.26, and pay a fine of $1.25 million.
Mr. Khuzami praised the work of the Federal Bureau of
Investigation and U.S. Department of Health and Human Services, Office of the
Inspector General, and thanked the Securities and Exchange Commission for its
assistance.
This case is being handled by the Office’s Securities and
Commodities Fraud Task Force. Assistant
United States Attorneys Ian McGinley and Joshua A. Naftalis are in charge of
the prosecution.
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