SEC Investigates CMS Officials in Three Insider-Trading Cases
The Securities and Exchange Commission is conducting three probes into whether CMS officials leaked information that was later used by Wall Street analysts, the Wall Street Journal reports.
According to the Journal, any charges in the investigations would be among the first tests of insider trading laws involving the exchange of federal information. While insider trading laws are fairly straightforward in regard to information leaked from public companies, laws addressing information from government officials "are more ambiguous," the Journal reports.
CMS in a 2010 memo said that agency officials should not disclose deliberations that could have an effect on stock prices "unless [the information] is properly authorized for such release." However, the memo noted that "it is sometimes difficult to determine whether a CMS announcement will be market sensitive."
Meanwhile, CMS officials have also cited an obligation to keep stakeholders informed of policy information amid concerns over potential effects on the market if such information was to be leaked.
Details of Investigations
SEC has issued several subpoenas in the investigations to government officials, policy-research groups and Wall Street analysts, according to the Journal. In addition, authorities have interviewed nearly a dozen CMS staffers, some of whom have agreed to share information under agreements that they will not be prosecuted for what they disclose.
According to the Journal, SEC in one investigation is assessing whether CMS officials leaked information about the agency's June 2010 decision to consider limiting coverage for Dendreon's Provenge prostate-cancer treatment to policy-research firm Marwood Group. Dendreon's shares declined by 26% between June 1, 2010, and June 30, 2010, when CMS announced its review. Specifically, SEC is investigating whether Marwood illegally obtained information about CMS' planned review and whether Marwood obtained private information from CMS officials in other cases.
SEC is also investigating whether former CMS employee David Blaszczak obtained inside information about agency deliberations. According to the Journal, Blaszczak has often made correct predictions about Medicare reimbursement rate decisions, such as a June 29 research note predicting that Provenge likely would be reviewed.
Further, SEC and FBI are investigating whether CMS officials leaked information about an unannounced change in Medicare Advantage plan payments prior to the changes becoming public in April 2013. The investigation involves research firm Height Securities and a well-known health care lobbyist, according to the Journal.
A Marwood spokesperson said the company "has cooperated fully with the SEC's inquiry and demonstrated to the SEC that we knew nothing about the CMS announcement on Provenge beforehand, and that we were completely surprised by it."
Blaszczak said, "I only use public information in preparing all my reports," adding, "I am proud of my record, and if needed, will vigorously fight any false allegation."
A CMS spokesperson said, "CMS employees undergo regular training on how to appropriately handle this type of sensitive information," adding that the agency "[has] and will continue to cooperate fully with law enforcement" (Mullins et al., Wall Street Journal, 10/28).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.