U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21721 / November 2, 2010
Securities and Exchange Commission v. Dr. Yves M. Benhamou, Civil Action No. 10-cv-8266 (S.D.N.Y.)
SEC CHARGES MEDICAL RESEARCHER/CONSULTANT WITH UNLAWFULLY TIPPING INSIDE INFORMATION CONCERNING HGSI CLINICAL TRIAL
The Securities and Exchange Commission today charged a French doctor/consultant with unlawfully tipping a hedge fund portfolio manager material, non-public information concerning Human Genome Science, Inc.'s ("HGSI's") clinical trial for the drug Albumin Interferon Alfa 2-a ("Albuferon"), a potential drug to treat hepatitis-C, in advance of HGSI's January 23, 2008 negative announcement.
The complaint, filed in the Southern District of New York, alleges that Yves M. Benhamou, M.D., the French doctor and a member of the Steering Committee overseeing HGSI's clinical trial of Albuferon, tipped the portfolio manager about problems encountered during Phase 3 of the trial. While serving on the Steering Committee, Benhamou also provided consulting services to the portfolio manager, with whom he had also developed a friendship over the years. According to the complaint, the portfolio manager, based on the material, non-public information provided by Benhamou, ordered the sale of the entire position of HGSI stock held by the six healthcare-related hedge funds that he co-managed, or approximately six million shares, during the six and a half weeks preceding HGSI's January 23, 2008 announcement. As a result of the sales, the hedge funds avoided losses of at least $30 million.
The complaint alleges that Phase 3 of HGSI's clinical trial consisted of three arms: (1) a 1200 microgram dosage of Albuferon; (2) a 900 microgram dosage of Albuferon; and (3) a dosage of the current leading hepatitis C drug on the market. HGSI expected Phase 3 of the trial to show that the 1200 microgram dosage performed better than the current leading hepatitis C drug and had fewer side effects and thus great commercial potential. According to the complaint, from no later than December 1, 2007, until prior to the announcement, Benhamou learned of (i) two serious adverse events, including one death, that occurred in the 1200 microgram arm of the trial; (ii) the possibility and ultimate recommendation by an independent safety committee monitoring the trial to stop the 1200 microgram dosage; and (iii) HGSI's decision to follow the committee's recommendation, reduce the dosage for the patients on the 1200 microgram arm to 900 micrograms, and publicly announce the changes to the trial. The complaint alleges that Benhamou tipped material non-public information about the trial to the portfolio manager, in stages, immediately upon learning of each new negative development. According to the complaint, the portfolio manager knew or should have known that Benhamou was affiliated with the Albuferon trial, that it was improper for Benhamou to consult with the portfolio manager about Phase 3 of the trial, and that Benhamou breached his duty of confidentiality to HGSI when he tipped the portfolio manager material, non-public information about the trial. The complaint alleges that the portfolio manager, based on the material, non-public information tipped by Benhamou, caused the six hedge funds to sell approximately six million shares of HGSI between December 7, 2007 and January 22, 2008, including two million shares sold in a block trade just before the markets closed on January 22, 2008. On January 23, 2008, when HGSI announced it was dropping the 1200 microgram arm of the Albuferon trial at the recommendation of the independent safety committee, HGSI's share price dropped to $5.62 by the end of the day, representing a 44 percent drop from the close of the prior day. The hedge funds avoided losses of at least $30 million.
Benhamou is charged with violating the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 [15 U.S.C. § 77q(a)], Section 10(b) of the Securities Exchange Act of 1934 [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. The complaint seeks a final judgment permanently enjoining him from future violations of the above provisions of the federal securities laws, ordering him to disgorge any ill-gotten gains plus prejudgment interest, and ordering him to pay a financial penalty.
In a parallel criminal proceeding, the U.S. Attorney's Office for the Southern District of New York announced today a criminal action against Benhamou.
The Commission thanks the United States Attorney's Office for the Southern District of New York, the Federal Bureau of Investigation and the French Autorité Des Marchés Financiers for their cooperation in connection with this matter.
The SEC's investigation is continuing.
See Also: SEC Complaint