Hedge Fund Adviser Says Analysis Was His, Not From DC Leaks

(Bloomberg) -- The central figure in a Washington-meets-Wall-Street insider trading trial got his information through research, not a well-placed government source, his lawyer told jurors near the end of a trial focused on the capital’s “political intelligence” industry.

David Blaszczak, a former hedge fund consultant, is charged with passing market-moving information to an investment firm. Prosecutors claim that he shared the government’s plans to cut medical treatment reimbursement rates that he got from a friend who worked in the federal Centers for Medicare and Medicaid Services. Deerfield Management, a New York fund, then allegedly used the information to make more than $3.5 million in trading profits.

In his summation Wednesday, Blaszczak’s lawyer walked jurors through emails, detailed timelines and research reports to persuade them that his ability to predict the government’s rate cuts was the result of hard work, not cheating.

“This was real analysis,” said the lawyer, David Patton, in the fourth week of a criminal trial in Manhattan federal court. “This was not a mole inside of CMS.”

CMS Source

Blaszczak, his alleged CMS source Christopher Worrall and Deerfield partners Theodore Huber and Robert Olan are on trial for violating insider-trading laws. Prosecutors claim all four men knew the information was secret and that trading on it was illegal.

“Every link in this chain knew that this information was stolen from CMS, that it was used to make money,” said Assistant U.S. Attorney Brooke Cucinella in her closing argument Tuesday afternoon.

During the trial, jurors heard testimony from Jordan Fogel, another former Deerfield analyst who pleaded guilty and is cooperating with prosecutors. Deerfield agreed to pay $4.6 million in August to settle U.S. Securities and Exchange Commission allegations that it failed to properly supervise its employees. It didn’t admit or deny the regulator’s allegations.

Washington Leak Culture Meets Wall Street’s Insider Cops

New York-based Deerfield manages about $8 billion, with investments in more than 100 health-care companies, according to its website. Prosecutors said Deerfield was Blaszczak’s top client and that the firm paid him about $1 million in fees. Fogel is no longer with the firm, and Huber and Olan are on leave.

In addition to Fogel, jurors heard from Christopher Plaford, a former portfolio manager at Visium Asset Management. Blaszczak is charged with passing information to Plaford in a set of charges that don’t include the other three trial defendants. Plaford pleaded guilty and testified last year against former Visium executive Stefan Lumiere, who was convicted of mismarking bonds.

The case is U.S. v. Blaszczak, 17-cr-00357, U.S. District Court, Southern District of New York (Manhattan).

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