Consultant charged in scheme to trade US secrets for profit

A Washington consultant, three hedge fund workers and a government employee were blamed Wednesday by federal prosecutors for an insider trading scheme that converted government secrets into hedge fund profits.

Four were arrested on conspiracy, securities fraud and other charges contained in an indictment unsealed in Manhattan federal court while it was revealed that a fifth person has already pleaded guilty and is cooperating.

Acting U.S. Attorney Joon H. Kim said the defendants used "highly sensitive and confidential information" from the Centers for Medicare & Medicaid Services, part of the U.S. Department of Health and Human Services, to enable three hedge fund workers to make over $3.5 million illegally for their company from 2012 through 2014. The Securities and Exchange Commission said the profits reached $3.9 million.

"Just like trading on material nonpublic corporate information can be a federal crime, so can trading based on secret government information," Kim said.

Those charged included David Blaszczak, 41, of Isle of Palms, South Carolina, a consultant at several Washington, D.C.-based firms that in return for a fee provide so-called political intelligence such as analysis about how changes in government reimbursement rates would affect publicly traded health care-related companies, prosecutors said. A lawyer for Blaszczak did not immediately comment.

Before he became a consultant, Blaszczak worked at the Centers for Medicare & Medicaid Services as a special assistant to the CMS administrator, prosecutors said.

Authorities said he remained friends with CMS employee Christopher Worrall, who fed him secrets while working in the director's office as a special assistant. Lawyers for Worrall, 39, of Linthicum Heights, Maryland, declined to comment.

The SEC complaint said Blaszczak bragged about his access to information from inside CMS, saying in one email that another analyst's predictions differed from his because his competitor "doesn't know anyone at cms. His guesses are just wild random guesses."

According to court papers, Blaszczak fed government secrets to three hedge fund employees at Deerfield Management Co.: Theodore Huber, 55, of Westport, Connecticut; Robert Olan, 46, of Rumson, New Jersey; and Jordan Fogel. The former partners and analysts at Deerfield were arrested Wednesday, except for Fogel, who has pleaded guilty, prosecutors said.

Attorney Marc Mukasey, representing Fogel, said: "Jordan is looking forward to resolving this matter and moving on."

Attorney Barry Berke, representing Huber, said his client "did absolutely nothing wrong."

"At all times, his research was based on detailed and rigorous analysis as well as the type of information regularly and properly relied upon by institutional investors in evaluating health care and medical companies," Berke said in a statement. "Mr. Huber and his counsel look forward to his day in court where it will be shown that this prosecution is an ill-advised attempt to transform entirely innocent research and trading into a crime."

Attorney David Esseks, representing Olan, said his client "is an innocent man and looks forward to clearing his name at trial."

In a statement, Deerfield said it "is committed to maintaining a strict culture of compliance and the highest ethical standards. We are cooperating fully with the government's investigation."