Market Abuse: USA's SEC alleges doctor released drug-trial information to investors

Now the Securities and Exchange Commission has issued proceedings against Dr Yves Benhamou, a French national, resident in France, who was one of five members of the panel overseeing the trial. Benhamou also worked as a consultant to several alternative investment funds (which the SEC terms "hedge funds") and other investors in the healthcare sector.

The SEC alleges that Benhamou had a relationship with a portfolio manager who was affiliated with several investment advisers and funds. It is further alleged that Benhamou was paid for this consulting since at least 2006.

But, says the SEC in its complaint, in November 2007 and on several occasions thereafter, "Benhamou learned material non-public information about the Albuferon trial that had negative implications for Albuferon's future potential. He communicated such information to the portfolio manager in [breach] of his duty to HSG to keep the information confidential."

The portfolio manager - whose identity has been concealed by the SEC - "acting under the authority delegated to him by the investment advisers for the six hedge funds caused those hedge funds to sell all of their remaining holdings of HGS stock."

The last transaction was on 22 January 2008; the following day the company publicly announced the results of its trail and the value of its shares fell 44% that day.

"Overall, the hedge funds sold approximately 6 million shares of HSG common stock ... thereby avoiding at least USD30 million in losses." But after selling, and after the price fell "they went back into the market...and purchased more shares of HSG stock at a reduced price."

Benhamou is 49 years old and lives in France. He specialises in liver diseases, in particular hepatitis. At the relevant time, he headed the Department of Clinical Research in Hepatology and an Associate Professor of Hepatolgy in a University College hospital in Paris. He was also a "clinical investigative physician" for HGS and was involved in the trial both as a member of the supervisory committee and as "country lead investigators" for France and several other countries. Under his contract with HGS, he was obliged to maintain strict confidentiality over all findings and other information obtained during the drugs trial.

Although the portfolio managers concerned were not named, the SEC has released the following information:

One was a managing director of an investment bank who co-managed the portfolios of six funds. He worked in the Connecticut office of a fund owned by the bank. The bank's code of conduct and its contract with him both prohibited the use of non-public information for any purpose.

There were three other portfolio managers - all were "managing directors" of the investment bank at the relevant time.

There is a "healthcare trader," also employed by the investment bank and who accepted and acted on the instructions to sell the shares.

Four "investment advisers" include four companies registered in Delaware and two individuals registered under the US Investment Advisors (sic) Act 1940 and each of them was an executive officer of one of the Delaware companies.

The hedge funds have not been identified: there are six: three are registered in Delaware and three in the Cayman Islands.

The U.S. Attorney's Office for the Southern District of New York announced that concurrent criminal action has been issued against Benhamou.