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Insider trading

Five accused in D.C. to Wall Street insider trading scam

Kevin McCoy
USA TODAY

Federal authorities Wednesday accused five people, including a former federal health employee, in an alleged Washington-to-Wall Street insider trading scheme that helped hedge fund executives reap millions of dollars in illegal profits.

File photo taken in 2014 shows the statue of George Washington on the steps of Federal Hall in New York City facing the facade of the New York Stock Exchange.

The allegations cast an unflattering spotlight on the financial industry's increased use of so-called political intelligence consultants who pump government insiders for secret, market-moving information. The consultants allegedly pocket lucrative fees, as the investment firms make financial gains from trading bets based on the information.

Christopher Worrall, an employee of the U.S. Centers for Medicare and Medicaid Services, allegedly was the leaker in the new federal cases. He gave secret market-moving information to friend and former CMS employee David Blaszczak from 2012 through 2014, according to a criminal indictment federal prosecutors unsealed in New York City and a civil lawsuit filed by the Securities and Exchange Commission.

Blaszczak, who worked for Washington-based political consulting firms, allegedly pressed Worrall for CMS information and then funneled it to three executives at Deerfield Management, a hedge fund focused on healthcare investments. Accused co-defendants Theodore Huber and Robert Olan are listed as partners on Deerfield's website. Jordan Fogel, the remaining suspect, is a former Deerfield employee who pleaded guilty last week.

According to the government filings, the alleged scheme generated between $3.5 million and $3.9 million in illegal profits.

"A federal employee breached his duty to protect confidential information by tipping a political consultant who then passed along those illegal tips," Stephanie Avakian, acting director of the SEC's enforcement division, said in a written statement. "There's no place in our government for such blatant misuse of highly confidential information."

Worrall's attorney, Glenn Colton, declined to comment. Defense lawyer Barry Berke said Huber "did absolutely nothing wrong" and based all his research "on detailed and rigorous analysis as well as the type of information regularly and properly relied upon by institutional investors in evaluating healthcare and medical companies."

Attorneys for Blaszczak and Olan did not respond to messages seeking comment. Fogel's lawyer, Marc Mukasey, said "Jordan looks forward to resolving this and moving on," Reuters reported.

However, the government filings alleged that the defendants actively schemed to obtain and profit from CMS rules on reimbursement rates for at least three pending decisions that would affect the reimbursements that healthcare companies receive from Medicare for services and products related to cancer treatments or kidney dialysis.

Worrall in March 2013 gave Blaszczak two confidential CMS documents involving plans to reduce reimbursements for kidney dialysis treatment, authorities charged. Blaszczak allegedly provided the information to the Deerfield employees, who placed trading bets that a healthcare firm's financial fortunes would drop when the news became public. After financial markets closed on July 1, 2013, CMS announced a 12% reduction.

"Boy was he ever right," Fogel emailed a Deerfield colleague afterward, referring to Blaszczak and the information allegedly received from Worrall, the criminal indictment charged.

"Blaszczak later contacted Fogel and bragged: "Warren Buffett can eat it. Nailed the 12% cut on dialysis," the indictment alleged.

Supreme Court sets tough insider trading rule

The SEC legal complaint said the hedge fund paid political intelligence firms where Blaszczak worked at least $193,000 during a 19-month period.

In August 2014, Blaszczak allegedly tried to lure Worrall into joining him as part owner of new political intelligence firm he was forming.

According to the criminal indictment, Blaszczak told Worrall: "[m]e and the two guys that work for me are on pace for 1.7 million total revenues for 2014." If Worrall joined the venture, the group would "kill it working together," Blaszczak allegedly added.

Worrall appeared eager, the indictment charged, saying he responded: "You're like a drunk whore to me. Hard to resist. Lol. Let's talk."

Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc

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