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Deerfield to pay $4.6 million to settle SEC charges of insufficient insider-trading preventions

Deerfield Management Co. will pay more than $4.6 million to settle charges that it had insufficient safeguards in place to prevent insider trading, the Securities and Exchange Commission announced Monday.

The case against the hedge fund firm is related to insider-trading charges announced by the SEC on May 24, alleging a scheme by some Deerfield analysts and a political intelligence analyst, involving tips of non-public information about government plans to cut Medicare reimbursement rates, which affected the stock prices of certain publicly traded medical providers or suppliers.

The SEC said that from at least May 2012 to November 2013, Deerfield generated more than $3.9 million in trading profits based on material, non-public information from the political intelligence analyst, and that through management agreements with hedge funds, including performance-based compensation, Deerfield received approximately $714,110 due to these trades.

Robert A. Cohen, co-chief of the SEC enforcement division's market abuse unit, said in a statement Monday that an investment adviser's policies and procedures must be tailored to address the specific risks presented by its business. "Deerfield relied on political intelligence firms, creating a risk that it would receive and trade on illegal inside information," Mr. Cohen said.

Deerfield did not admit or deny the findings. The firm will pay disgorgement of $714,110 plus interest of $97,585 and a penalty of $3.95 million.

A call to Deerfield was not returned at press time.

Deerfield has about $8 billion in assets under management.