E ven on a Saturday, the conferences that Dr. Leslie Fang attended in New York for MedaCorp, a Boston firm that provides investors with industry insight from medical professionals, were packed.
A renowned kidney specialist and physician at Massachusetts General Hospital, Fang with other prominent physicians would dish on the latest treatments and research—information fund managers in the audience hoped would provide an edge when investing in health care. Still consulting intermittently for MedaCorp, Fang is amazed at the people who interrupted weekends for the briefings.
“When was the last time they would give up a Saturday for anything?’’ Fang said. “They definitely view it as valuable information, valuable enough for them to give up a Saturday.’’
Fang is a member of an expert network, a collection of specialists that serves as a kind of research institute for investors willing to pay hefty subscription fees. For years, these networks operated—legally—in the shadows of the financial industry, but in recent months they have been thrust into an unwelcome spotlight by a series of insider trading scandals.
The problems for the industry arose when some consultants—and their investor clients—crossed a bright legal line by disclosing confidential information about a company’s business, and trading on that for profit. The insider trading scandal involving New York hedge fund Galleon Group is the most prominent example: Among the dozens of convictions and guilty pleas in the case, 10 people had connections to an expert network firm, whether as a consultant, employee, or client.
In November, in a separate case, a French doctor pleaded guilty in US court to leaking information to a hedge fund manager about a drug trial in which he was involved. The hedge fund trader also pleaded guilty to related charges.
In Massachusetts, Secretary of State William F. Galvin last year accused a hedge fund manager of insider trading for allegedly using confidential information he received from doctors working for the expert network Guidepoint Global LLC of New York. Galvin alleged three doctors involved in the clinical trial of a cancer drug provided inside information to the hedge fund manager while they were consultants for Guidepoint.
Guidepoint declined to comment.
No one from MedaCorp has been implicated in an insider trading case. But the firm’s parent, Boston investment bank Leerink Swann, is under investigation involving trades in the stock of one of its clients by one of its MedaCorp customers, the giant New York hedge fund SAC Capital.
The Securities and Exchange Commission is investigating whether the hedge fund in 2009 received inside information about the $1 billion takeover of Leerink client Cougar Biotechnology Inc. by medical giant Johnson & Johnson before it was announced, according to a person with knowledge of the investigation, who asked not to be identified because of the sensitivity of the matter.
Leerink was hired by Cougar on May 20, 2009, to provide an opinion on whether the J&J offer was fair to shareholders. That same day an unusually high number of Cougar shares traded hands. After the J&J deal was announced one day later, Cougar’s stock exploded, making a lot of money for investors who bought shares before the announcement.
Leerink declined to comment on the Cougar case. But in a statement, the company noted that as an investment bank it is highly regulated and bound by rules and practices that it extends to its MedaCorp subsidiary.
“Fairness, objectivity, and compliance is of paramount importance to us and the firm is and has always been committed to adhering to the highest ethical standards and best industry practices in all of our lines of business, including MedaCorp network,’’ Leerink said.
In a statement, SAC Capital reiterated it had not been contacted by authorities about Cougar, but would cooperate if it was. The firm added that “SAC’s investment in Cougar Biotech was perfectly reasonable and based on strong fundamental research and widely available public information.’’
Leerink launched MedaCorp 15 years ago as an outgrowth of its business providing research and banking services in the health care arena. Unlike the common Wall Street practice of research analysts reporting on developments, MedaCorp provides its investor and entrepreneur clients with opinions about drug potentials and business opportunities directly from experts. MedaCorp’s network of thousands of doctors includes heads of medical departments, research labs, and others who have established themselves as leading figures in their fields.Continued...