Massachusetts Accuses Hedge Fund of Using Inside Information
Hedge-fund manager James A. Silverman was accused by Massachusetts officials of using inside information on clinical trials to generate profits for his Cambridge-based firm.
Silverman, 43, who started RRC Bio Fund LP in 2007, used Guidepoint Global LLC, a so-called expert-network company with an office in Boston, to obtain the information, according to a civil complaint filed today by Secretary of the Commonwealth William Galvin’s office.
Silverman’s fund, which focused on biotechnology stocks, returned 52 percent in 2010 and 55 percent in 2009 after losing 17 percent in 2008, according to the e-mailed statement from Galvin’s office. The fund had about $24 million in assets as of November, said Brian McNiff, a spokesman for Galvin.
“With access to Guidepoint, the Fund began a dramatic resurgence,” the complaint said. “These returns were generated, at least in part, upon Silverman’s receipt of material non-public information he received through Guidepoint consultations.”
Silverman received nonpublic information through unnamed Guidepoint consultants on Cambridge-based Ariad Pharmaceuticals Inc. (ARIA) and Questcor Pharmaceuticals Inc. (QCOR), according to the complaint. Firms such as Guidepoint, which provide research and connect industry experts with investors, have come under scrutiny amid a U.S. investigation into insider trading.
Phone calls to Silverman seeking comment weren’t returned.
Silverman, who hired Guidepoint for $80,000 in early 2008, used the firm’s consultants to get information on clinical trials conducted by Ariad into an experimental cancer treatment called AP24524, also known as ponatinib, according to the complaint. He bought a “significant” number of the biotech company’s shares, which jumped 30 percent the day information of the trials was made public in July 2009, the complaint said.
“Despite their confidentiality obligations, each investigator provided Silverman material, nonpublic information regarding how the trial was progressing,” the complaint said. “In return, the investigators received anywhere between $400 and $1,000 an hour through Guidepoint.”
Guidepoint’s compliance policies "conform to the highest industry standards," and the firm has "cooperated fully" with Galvin’s investigation, Mark Semer, a spokesman for Guidepoint said in an e-mailed statement. “That investigation has resulted in no action being brought against Guidepoint Global or any of its employees, and the Secretary’s complaint does not assert that Guidepoint Global knew of, or participated in, any of the misconduct alleged."
Ariad was aware of Galvin’s investigation and is ‘‘firmly opposed to outside clinical investigators who are under confidentiality agreements with the company providing nonpublic information to investors or their consultants,” said Maria Cantor, a spokeswoman for the firm.
Ponatinib, a treatment for hematological cancers, is currently in a trial designed to provide data for regulatory approval. Ariad’s shares have more than tripled since the July 2009 data were released.
Silverman also got nonpublic statistical data from a case study on Union City, California-based Questcor’s primary product, a treatment for nephrotic syndrome, according to the complaint. He bought 58,800 Questcor shares before the results were published in a medical journal, the complaint said.
“Silverman apparently also knew that he should not have received this information, as he deleted his notes containing the study results prior to producing them to the (Securities) Division in response to its subpoena,” the complaint said.
Janine McCargo, a spokeswoman for Questcor, didn’t immediately return calls seeking comment.
Silverman is also charged with failing to maintain records and submitting multiple false filings with the securities division.
The complaint seeks to revoke Silverman’s registration as an investment adviser as well as the registration of Risk Reward Capital Management.
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