The Securities and Exchange Commission has prevailed upon the hedge fund advisory firm Visium Asset Management LP to settle charges related to asset mismarking and insider trading by its privately managed hedge funds and portfolio managers. It has not, however, admitted any wrongdoing.

The SEC’s order finds that two portfolio managers of Visium of New York falsely inflated the value of securities held by hedge funds that it was advising, causing the funds to inflate returns, overstate their aggregate net asset values and pay approximately $3.15 million in excess fees to Visium. The order also says that certain Visium portfolio managers traded in the securities of pharmaceutical companies in advance of two generic drug approvals by the US 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 Centres for Medicare and Medicaid Services (CMS), based on confidential information received from a former CMS employee working as a paid consultant to Visium.

In another order, the SEC states that Steven Ku, Visium’s chief financial officer, failed to supervise the two portfolio managers (Christopher Plaford and Stefan Lumiere) reasonably. These men perpetrated the asset mismarking scheme by failing to respond appropriately to 'red flags' that should have alerted Ku to their misconduct.

The SEC charged Plaford and Lumiere (and the former FDA official, among others) for their misconduct in June 2016. The former CMS employee was charged for other misconduct in May of last year as well. Earlier this year, the SEC barred Lumiere from the securities industry. Its case against Plaford has been stayed so as not to interfere with a parallel criminal case.

The SEC says that it expects advisory firms not to tolerate one jot or tittle of unlawful conduct - a tall order in a profit-making environment with under-resourced compliance departments. 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.