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A jury's verdict sent a warning to Washington's political intelligence industry and funds that rely on it: Trading on government secrets is as risky as using insider corporate information.
David Blaszczak, a Washington consultant who gave hedge funds advance word on Medicare reimbursement rates, was convicted Thursday of stealing secrets from the government and insider trading. A federal jury found that he provided hedge fund clients with tips he learned from ex-colleagues still in the government.
Blaszczak, who worked as a consultant after leaving the Centers for Medicare and Medicaid Services, was among four defendants found guilty in Manhattan federal court. Christopher Worrall, Blaszczak's friend and alleged source inside CMS, was also convicted, as were Robert Olan and Theodore Huber, two partners at Deerfield Management.
The trial cast a harsh light on Washington's political intelligence industry. While the defense argued that information sharing was routine in the capital, prosecutors took aim at a political culture in which businesses pay consultants, often former government employees, to leverage colleagues still in public service to get a heads-up on planned actions that could move markets.
After a monthlong trial, Blaszczak was found guilty of passing details of government plans to cut reimbursement rates for a certain kind of cancer treatment and for kidney dialysis. Deerfield, which paid Blaszczak about $1 million in fees, used the information to make more than $3.5 million in trading profits, according to prosecutors.
Blaszczak was found guilty of 10 of 18 counts. Defense lawyers declined to comment on the verdict.
Star Witness
The government's star witness, Jordan Fogel, a former Deerfield partner who pleaded guilty in a bid for leniency, testified that Deerfield used Blaszczak to gain an illegal "edge," allowing it to trade ahead of government announcements.
Fogel told jurors that Blaszczak passed along frequent updates as CMS considered the reimbursement changes, information that was often at odds with public expectations.
"It was not public," Fogel testified. "It was much different than the consensus."
The jury convicted Deerfield partners Olan and Huber of five counts and acquitted them of five others. A spokesman for Deerfield declined to comment on the verdict.
