Hedge Fund Analysts Charged with Making Misleading Statement in Connection with Securities-Related Transactions

November 27, 2013

The SEC charged Marie L. Huber and Jess E. Jones, two former hedge fund analysts, for making misleading statements.

Huber, who has degrees in biochemistry and bioscience, and Jones, who has a medical degree, were analysts at hedge fund advisers in New York. In April of 2010, the Food and Drug Administration (FDA) approved Provenge, an immunotherapy developed by Dendreon Corporation (Dendreon), for the treatment of late-stage prostate cancer. In June 2010, after analyzing documents that the FDA released relating to Provenge, Huber concluded that the treatment was hastening the death of patients. Huber began drafting a report for her employer, a version of which was subsequently published in a medical journal, entitled “Provenge PhIII Trials – The Alternative Explanation of Survival Results” (the Alternative Explanation), which set forth her analysis. Huber shared the draft report with a number of individuals, including Jones.

From mid-June through mid-July 2010, Huber and Jones each purchased Dendreon put option contracts. The options all had July and August 2010 expiration dates, and all were “out of the money.” This means the strike price was below the market price for Dendreon stock.

The SEC also found that, on June 30, 2010, the Centers for Medicare & Medicaid Services (CMS) opened a national coverage analysis for Provenge, and requested public comments concerning the efficacy of Provenge and whether it should be covered by Medicare and/or Medicaid. Huber encouraged her employer to submit the Alternative Explanation to CMS. As the expiration date neared for their July put option contracts, Huber and Jones were concerned that Huber’s employer was not going to submit the Alternative Explanation to the CMS website prior to the expiration date. As a result, Huber and Jones, according to the SEC, arranged to disseminate the Alternative Explanation on their own. Huber gave Jones a flash drive which contained documents relating to the Alternative Explanation, including copies of the report, an email distribution list, and the version of an email text that Jones subsequently used to disseminate the report.

The SEC stated that on the evening of July 14, 2010, Jones created an email account using the name Jonathan White, and sent emails attaching the Alternative Explanation to more than 450 email addresses from a distribution list that Huber had provided. The text of the July 14 “Jonathan White” emails omitted to state material facts necessary to make the statements not misleading. The emails stated that the Alternative Explanation was “written by a group of scientists and physicians” and was signed “A concerned physician, scientist and citizen.” These statements were misleading because Huber and Jones were hedge fund analysts who held Dendreon put option contracts that were about to expire. These facts were material because investors would have considered the identity, motive, and financial self-interest of Huber and Jones important to assessing the report and any decision to buy or sell the securities of Dendreon. On July 15, 2010, after the emails were sent, Dendreon shares fell 7.2% intraday, and closed down 4.5% on heavy trading. That day, Huber and Jones each sold a small number of their put option contracts. However, Huber and Jones suffered significant trading losses as the vast majority of their put option contracts remained unsold or unexercised because they were so far “out of the money.”

As a result, Huber and Jones violated Section 17(a)(2) of the Securities Act, which prohibits any person, in the offer or sale of any securities, to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statement made, in light of the circumstances under which they were made, not misleading.

Please click here to access the administrative order


Investment Advisers, Investment Companies