Money managers at Jacob Gottlieb's Visium Asset Management hedge fund face federal charges that include trading on illegal tips from a former official at the Food and Drug Administration.
Visium is the biggest hedge fund to have employees linked to criminal wrongdoing since the government set its sights on firms including Galleon Group and S.A.C. Capital Advisors. Both firms were forced to shut their doors after traders and executives were accused of widespread insider trading. Visium is not accused of wrongdoing.
In one case unsealed Wednesday, Visium's Sanjay Valvani is accused of trading on tips about drugs that were seeking generic status from the FDA, according to federal prosecutors in New York. As part of its case, the government has won a guilty plea from the former senior FDA official, Gordon Johnston, who worked as a consultant to Visium from 2005 to 2011 and allegedly passed tips to the fund from an FDA insider.
In another case, Christopher Plaford and Stefan Lumiere, two former Visium employees, are accused of allegedly mismarking securities. Mr. Plaford has pleaded guilty, and charges against Mr. Lumiere were unsealed Wednesday. Mr. Lumiere didn't immediately respond to requests for comment.
“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,” his lawyer, Barry Berke, said in a statement. “It will be shown that the prosecution of Mr. Valvani is 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.”
The four were also sued by the Securities and Exchange Commission. Jonathan Gasthalter, a spokesman for Visium, didn't immediately respond to requests for comment.
Mr. Gottlieb told investors in March that the firm is under investigation by the Justice Department and the SEC. Mr. Gottlieb, a medical school graduate who later turned to a career in finance, founded Visium in 2005 and expanded it beyond its roots in trading equities tied to the health-care industry. The firm manages about $8 billion today and employs more than 170 people in New York, London, and San Francisco.
According to the indictment, Mr. Valvani directed Mr. Johnston to get information about the approval status of a generic form of the drug enoxaparin from a former FDA colleague. Mr. Valvani used the FDA information to trade in the stock of two drug companies, for a $25 million profit. Mr. Valvani passed the information to Mr. Plaford, who also traded on it, according to prosecutors.
“FDA, by policy, does not comment on potential or ongoing investigations,” Christopher Kelly, a spokesman for the FDA, said in an e-mail.
The FDA insider was unaware of how the information was going to be used, authorities said.
Prosecutors claim that from June 2011 to September 2013, Messrs. Plaford and Lumiere misstated the value of a fixed-income fund managed by Mr. Plaford by inflating its net asset value and overstating its liquidity. Mr. Lumiere surrendered to authorities Wednesday.
