Marwood Group Research LLC is under investigation by the Securities and Exchange Commission (SEC) for a violation of the STOCK Act.
Marwood, a political intelligence firm, is accused of trading and selling political information concerning health care changes that have not yet been made available to the public.
Marwood has committed more than one offense in this area. Details from Foley.com:
Marwood is a registered broker-dealer and investment adviser, which provides regulatory and government intelligence updates (called “research notes”) to clients, including hedge funds. According to the SEC, in two separate instances in 2010 Marwood analysts learned from federal employees about potential non-public developments in health care regulations and then shared this intelligence with clients without ensuring that it did not qualify as material non-public information (MNPI).2 Even though Marwood had written compliance policies and procedures requiring employees to verify that any intelligence was not based on MNPI, in both cases, the firm’s employees failed to identify the potential MNPI and failed to consult with the compliance department.
In the first incident, a Marwood employee who had previously worked at the Centers for Medicare and Medicaid Services (CMS) allegedly learned from former colleagues that the CMS had commenced an investigation into Medicare coverage of the immunotherapy drug Provenge (to determine whether it was “reasonable and necessary” for the diagnosis or treatment of a specific illness or injury) because of concerns about unapproved use of the drug. The Marwood employee was told that the intelligence was “good color,” but he was also warned that if he leaked the information he would get “locked out of any conversations going forward.” Despite the warning, no one at Marwood consulted with the compliance department, and analysts disseminated research notes speculating that the CMS would continue covering Provenge for on-label uses.
In the second incident, a Marwood consultant who was formerly with the U.S. Food and Drug Administration (FDA) allegedly learned from his former colleagues that the agency was concerned about safety issues with a potential new diabetes drug called Bydureon. Again, without consulting compliance, the firm told various clients that the FDA might deny the drug’s application.
Marwood was charged with violations under Section 15(g) of the Exchange Act of 1934 (Exchange Act) and Section 204A of the Investment Advisers Act of 1940 ( Investment Advisers Act). Marwood agreed to settle the charges, and, as part of the settlement, consented to a cease and desist order, agreed to pay a fine of $375,000, and admitted wrong doing – i.e., that the firm failed to establish, maintain, and enforce written policies and procedures requiring employees to verify that the health care intelligence was not MNPI. The firm also agreed to hire an independent consultant to improve its compliance protocols.
The SEC and Congress are becoming more strict about cracking down on similar cases.
Photo by Christian Schnettelker via Flickr CC License
