By Brendan Pierson
NEW YORK (Reuters) - Two former partners of the hedge fund Deerfield Management were sentenced to three years in prison on Thursday after being convicted of taking part in what prosecutors have described as an insider trading scheme based on leaks from within a federal healthcare agency.
Rob Olan and Ted Huber were sentenced by U.S. District Judge Lewis Kaplan in Manhattan, along with two other people convicted of taking part in the scheme.
Christopher Worrall, who worked for the U.S. Centers for Medicare and Medicaid Services (CMS), was sentenced to 20 months, while David Blaszczak, founder of political consulting firm Precipio Health Strategies, was sentenced to one year and a day.
"It's a case that really calls out, in my judgment, for a significant punishment, for the purpose of deterring others," Kaplan said before imposing the sentence. Nonetheless, the judge said he was imposing a relatively lenient sentence on Blaszczak because the jail term would be a hardship for his wife, who is losing her vision, and that the other sentences were proportionately shorter as a result.
Kaplan ruled that the defendants could remain free while they appeal.
A spokesman for Deerfield also declined to comment.
Barry Berke, a lawyer for Huber, declined to comment, as did John Nathanson, a lawyer for Worrall. Lawyers for Olan and Blaszczak could not immediately be reached.
The four men were charged in May 2017 with fraud, conspiracy and misappropriating government property.
Prosecutors said that Worrall tipped Blaszczak about upcoming decisions from CMS, which determines how much government insurance programs will reimburse healthcare companies. They said Blaszczak passed the information on to Huber and Olan, who used it to make about $7 million for Deerfield.
Blaszczak had also worked at CMS and kept in touch with Worrall after he left, according to prosecutors. Worrall's illegal tips to Blaszczak included advance notice about rules cutting reimbursement rates for radiation cancer treatment and dialysis, allowing Deerfield to profit by trading in companies affected by the rules, prosecutors said.
Deerfield last year agreed to pay $4.6 million to the U.S. Securities and Exchange Commission to settle related civil claims, but did not admit or deny wrongdoing.
The companies whose stock was involved included radiation oncology companies Accuray Inc (O:ARAY) and Varian Medical Systems (N:VAR), and dialysis companies DaVita Inc (N:DVA), NxStage Medical Inc (O:NXTM), according to prosecutors.