French hepatologist Yves Benhamou presented research on several drugs being developed by Boehringer Ingelheim and Tibotec at the 2010 American Association for the Study of Liver Diseases meeting in Boston. Shortly afterward, he was arrested by FBI agents and charged with engaging in an insider trading scheme.
Dr. Benhamou, a liver disease expert whose research has been widely published in medical journals, was a country lead investigator and was on the steering committee that supervised a trial for Albumin Interferon Alfa 2-a (Albuferon), a hepatitis C drug being developed by Human Genome Sciences (NASDAQ:HGSI). He also consulted for Abbott, Bristol-Myers Squibb, Gilead, GlaxoSmithKline, Idenix Pharmaceuticals, Roche, Valeant and Vertex according to public filings. At the same time, he provided consulting services through expert networks, companies that charge substantial fees to provide hedge funds and other investors access to healthcare experts.
Dr. Benhamou’s role on the steering committee provided access to confidential information about serious adverse events during Albuferon’s clinical trial, including information about a patient fatality and the occurrence of lung disease in another patient. According to the charges, Dr. Benhamou used his dual roles as an adviser on the clinical drug trial and as a consultant to the hedge funds to provide material, nonpublic information about the drug trial's progress to hedge funds. By selling more than 6 million shares of HGSI before the public disclosure of the adverse events, the hedge funds avoided losses totaling approximately $30 million.
Charged with one count of conspiracy to commit securities fraud and one count of securities fraud, Dr. Benhamou faces a maximum sentence of five years in prison on the conspiracy charge and 20 years in prison on the securities fraud charge. Additionally, in a civil complaint, the Securities and Exchange Commission is seeking a permanent injunction, disgorgement of any ill-gotten gains with prejudgment interest, and a financial penalty against Dr. Benhamou.
In a Department of Justice press release, FBI Assistant Director-in-Charge Janice K. Fedarcyk said: "Dr. Benhamou was the quintessential insider, providing non-public information about the company for which he worked to a hedge fund holding millions of shares in the company. Insider information about the clinical trials of Albuferon was invaluable to the hedge fund, but passing it along wasn't fair, and it wasn't legal."
Manhattan U.S. Attorney Preet Bharara said: "Benhamou is alleged to have abused his position as a medical doctor by illegally tipping off a hedge fund so it could reap a $30 million windfall. As charged, by profiting from his sensitive position and providing the hedge fund an unfair advantage, Benhamou undermined the integrity of the securities market and sold out his employer. This office, along with the FBI and the Securities and Exchange Commission, will continue to pursue professionals of all stripes whose greed motivates them to corrupt the market and betray the companies they advise."
This case illustrates how it has never been more critical for physicians to manage their relationships with industry and the financial world very carefully.