Federal authorities arrested more suspects on insider-trading charges as part of a widespread crackdown on Wall Street hedge funds and physician “expert networks” -- research firms that match physicians with hedge funds, financial institutions and other firms seeking medical expertise.
CNBC.com reported that the arrests occurred in Boston, Round Rock, Texas, and Santa Clara and San Diego, Calif., with charges ranging from wire fraud to securities fraud. The website identified the defendants as James Fleishman, Manosha Karunatilaka, Mark Longoria, and Walter Shimoon. All four were previously employed by Primary Global Research LLC, based in Mountain View, Calif. A fifth individual, Daniel Devore, pleaded guilty to wire fraud and conspiracy to commit wire fraud.
The escalting federal probe is looking into whether nonpublic information has been passed along through these healthcare expert networks to hedge funds and other money managers.
Earlier this week, Leerink Swann LLC, an investment bank that launched one of the first physician “expert networks” -- a service that matches physicians with hedge funds, financial institutions and other firms seeking their medical expertise -- could close down in 2011 amid heightened government scrutiny of the industry, The Wall Street Journal reported Friday.
In 1995, the Boston-based investment bank launched one of the first medical-expert networks, MedaCorp, a network of more than 35,000 physicians and other healthcare professionals. according to the Journal.
Executives at Leerink held private discussions after learning that federal and state prosecutors are looking into the activities of so-called expert-network firms as part of a broader investigation into insider-trading, the newspaper reported.
"We think the investor clients are going to really withdraw quite a bit from" the expert network, Jeffrey Aroy, a Leerink executive, said in a phone call with the firm’s managers on Nov. 30. An audio tape of the call was reviewed by the Journal. "We envision ourselves being out of the connecting-investors-with-docs business by the middle of next year," he said on the tape.
A spokesman for Leerick told the Journal that the firm "continues to offer its institutional clients access to MedaCorp doctors," for now. "And it will continue to appropriately incorporate information from MedaCorp doctors in its investment-banking, research and consulting services and offerings."
To learn more about MedaCorp, and the probe into expert networks, read the Journal article.
In early December, FrontPoint Partners LLC, a hedge fund that is being spun-out of Morgan Stanley, fired all 12 members of its healthcare expert network after liquidating the firm’s healthcare fund in the wake of insider-trading charges, CNBC.com reported. FrontPoint has admitted that its investment managers were illegally tipped off about a clinical drug trial in 2007 and 2008, CNBC said. FrontPoint is prominently featured in Michael Lewis's book on the financial crisis, "The Big Short."