A former US Food and Drug Administration official who was accused of insider trading has agreed to a settlement with federal authorities and will have fork over the profits he made. Gordon Johnston, 64, must also pay a civil penalty, although the amounts have not yet been determined.
The deal, which was disclosed in a judgment filed in federal court on Monday, comes five months after Johnston pleaded guilty to securities fraud and three other crimes as part of a scheme to provide information to a high-profile hedge fund about upcoming agency approvals of generic drugs.
Johnston, who once worked as deputy director of the FDA’s Office of Generic Drugs from 1994 to 1999 and later worked as an industry consultant, was accused of insider trading by the US Securities and Exchange Commission. The agency maintained that Johnston was paid hundreds of thousands of dollars for tipping off clients about the status of generic drug applications at the FDA.
At the time he pleaded guilty last June, Johnston faced imprisonment for the various violations, but it is not clear if he will serve any time in jail. He also faced a $5 million fine and would have to relinquish any profits along with interest. However, the final terms will be decided by a federal judge after the SEC has filed a motion. An attorney for Johnston declined to comment.
The settlement caps one of the more closely watched instances of insider trading related to the pharmaceutical industry, which has seen a spree of such cases in recent years. This particular episode generated substantial attention, however, largely because it involved a former FDA official, renewing concerns about the extent to which agency matters can be exploited for personal gain.
As we reported previously, between 2005 and 2011, Johnston, 64, provided information about generic applications to Visium Asset Management by tapping his FDA contacts. One example involved an application to sell a generic version of Sanofi’s Lovenox blood thinner. He passed information to Sanjay Valvani, a manager at the fund, who traded shares of two drug makers likely to be affected by an approval and made a $24.8 million profit, according to the lawsuit filed by the SEC.
During this time, Johnston also worked as vice president of regulatory sciences for the Generic Pharmaceutical Association, which provided him a perch from which to develop and maintain agency contacts. Valvani initially paid Johnston a $3,000 monthly retainer, which was later increased to $4,000 per month, and then in 2010, was boosted to $5,000 per month, according to the SEC lawsuit. Johnston never disclosed his work for the fund.
The consulting work ended in 2011, when Valvani decided to end the relationship after watching federal prosecutors increasingly pursue insider trading cases. Valvani was also charged with securities fraud, as was a former Visium employee named Christopher Plaford who traded on the information and was also charged with securities fraud and improperly marking securities. Plaford pleaded guilty, according to the US attorney. As for Valvani, he was found dead in his Brooklyn apartment shortly afterward with a suicide note nearby.