Content of Penalty:
The Securities and Exchange Commission today announced the hedge fund advisory firm Visium Asset Management LP has agreed to settle charges related to asset mismarking and insider trading by its privately managed hedge funds and portfolio managers. Separately, the firm’s CFO agreed to settle charges that he failed to respond appropriately to red flags that should have alerted him to the asset mismarking.
The SEC’s order finds that two portfolio managers of New York-based Visium falsely inflated the value of securities held by hedge funds it advised, causing the funds to falsely inflate returns, overstate their aggregate net asset value, and pay approximately $3.15 million in excess fees to Visium. The order also finds that certain Visium portfolio managers traded in the securities of pharmaceutical companies in advance of two generic drug approvals by the U.S. Food and Drug Administration (FDA). The trades were based on confidential information received from a former FDA official working as a paid consultant to Visium. Trades were also made in the securities of home healthcare providers in advance of a proposed cut to certain Medicare reimbursement rates by the Centers for Medicare and Medicaid Services (CMS), based on confidential information received from a former CMS employee working as a paid consultant to Visium.
In a separate order issued today, the SEC finds that Visium’s CFO Steven Ku failed reasonably to supervise the two portfolio managers, Christopher Plaford and Stefan Lumiere, who perpetrated the asset mismarking scheme, by failing to respond appropriately to red flags that should have alerted Ku to their misconduct.
The SEC previously charged Plaford and Lumiere, and the former FDA official, among others, for their misconduct, in an enforcement action filed in June 2016. The former CMS employee was charged for other misconduct in May 2017. Earlier this year, the SEC barred Lumiere from the securities industry based on a final judgment entered against him in the SEC’s case as well as his conviction in a parallel criminal case. The SEC’s case against Plaford has been stayed pending the completion of a parallel criminal case.
“Advisory firms must create a culture of zero tolerance when it comes to unlawful conduct, and supervisors at those firms must take reasonable measures necessary to detect and prevent securities law-related violations by their personnel,” said Marc P. Berger, Director of the SEC’s New York Regional Office. “Here Visium’s portfolio managers engaged in illegal asset mismarking and insider trading, and Ku failed to act in the face of red flags that should have exposed the asset mismarking scheme.”
Visium agreed to settle the SEC’s charges by, among other things, disgorging illicit profits totaling more than $4.7 million plus interest of $720,711, and paying a penalty of more than $4.7 million. Ku agreed to pay a $100,000 penalty and to be suspended from the securities industry for twelve months. Visium and Ku each consented to the applicable SEC order without admitting or denying the findings.