A recent insider trading case against a doctor who was involved in clinical trials of a drug to treat hepatitis and allegedly tipped material, non-public information relating to those trials to a hedge fund manager, is another example of the government's renewed focus on insider trading and hedge funds.1 This case is noteworthy because it highlights the potential areas of abuse of sensitive clinical trial information in the pharmaceutical and life sciences areas. Given the recent government inquiries issued to pharmaceutical and life sciences companies relating to the Foreign Corrupt Practices Act, this action highlights another area of concern for public companies in those industries. Further, it brings into focus the potential areas of abuse in hedge fund relationships with consultants who have known connections with the publicly traded pharmaceutical and life sciences companies they trade.

Background

A French doctor served on a steering committee for a pharmaceutical company that oversaw the clinical trials of an experimental drug related to hepatitis. The government alleges that the doctor, as a member of that steering committee, possessed sensitive inside information regarding the results of the clinical trials and the drug’s effectiveness. The government also alleges that while serving on the steering committee, the doctor had consulting arrangements with hedge funds and other investors that purchased and sold healthcare-related securities. Pursuant to his contractual relationship with the pharmaceutical company, the doctor owed a duty to hold information learned regarding the clinical trials in strict confidence....

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