Opinion ID: 4468298
Heading Depth: 3
Heading Rank: 1

Heading: The Deerfield Scheme

Text: At various times between 2009 and 2014, Olan, Huber, and fellow Deerfield partner Jordan Fogel – a cooperating witness who pleaded guilty and testified at trial – approached Blaszczak for the purpose of obtaining so-called “predecisional” information concerning CMS’s contemplated rules and regulations. The three Deerfield partners knew that Blaszczak, who had worked 5 at CMS before becoming a consultant for hedge funds, enjoyed unique access to the agency’s predecisional information through his inside sources at the agency. Because other consultants did not have access to Blaszczak’s sources, the Deerfield partners counted him as a particularly lucrative fount of illegal market “edge.” App’x at 567, 606. This illegal market edge first paid off for the three Deerfield partners in July 2009, after Blaszczak passed them nonpublic CMS information concerning both the timing and substance of an upcoming proposed CMS rule change that would reduce the reimbursement rate for certain radiation oncology treatments. The Deerfield partners sought to maximize this market edge by trading while “the information wasn’t known to others, and . . . wasn’t public.” Id. at 593. In late June 2009, Olan, Huber, and Fogel directed Deerfield to enter orders shorting approximately $33 million worth of stock in radiation-device manufacturer Varian Medical Systems (“Varian”), a company that would be hurt by CMS’s proposed rule. Blaszczak’s information was consistent with the proposed rule that CMS ultimately announced on July 1, 2009, and as a result of the Varian trade, Deerfield made $2.76 million in profits. 6 Deerfield again traded on confidential CMS information obtained from Blaszczak in 2012. This time, Blaszczak obtained the predecisional information at issue from Worrall, a CMS employee who had previously worked with Blaszczak at the agency and remained friends with him after Blaszczak left CMS to become a hedge fund consultant. Blaszczak met Worrall at CMS’s headquarters in Maryland on May 8, 2012; the following day, Blaszczak emailed Fogel to set up a phone call so that he could update him on one of Fogel’s “favorite topics.” Id. at 2439. On the call, Blaszczak provided Fogel with predecisional CMS information about additional radiation oncology reimbursement rate changes. Fogel, in turn, shared this information with Huber and Olan, and together the three of them relied on it – in combination with other confidential CMS information that Blaszczak passed them over the next few weeks – in recommending that Deerfield short millions of dollars in the shares of companies that would be hurt by the reimbursement changes. Deerfield earned profits of $2.73 million from trades relating to this radiation oncology rule, which was publicly announced on July 6, 2012. In February 2013, shortly after Fogel moved to a different group within Deerfield, he reached out to Blaszczak in the hopes of “re-ignit[ing] the Blaszczak- 7 Fogel money printing machine.” Supp. App’x at 6. As Fogel testified at trial, the “Blaszczak-Fogel money printing machine” meant that “Blaszczak had a long history of providing [Fogel] and [his] teammates nonpublic information that [they] could trade on, and it was a great asset to get edge for investments.” App’x at 581. Fogel did not have to wait long for the machine to reignite. In June 2013, Blaszczak told Fogel that he expected CMS to propose cutting the reimbursement rate for end-stage renal disease (“ESRD”) treatments by 12 percent. Although Blaszczak did not reveal the source of his information to Fogel, the prediction was so specific – and so different from the market consensus – that Fogel believed it came “from a credible source inside of CMS.” Id. at 582. Still, Fogel remained anxious about the outlier status of Blaszczak’s prediction and continued to check in with him about his level of certainty. On June 25, 2013, less than a week before CMS announced the ESRD rule, Blaszczak told Fogel that there was “[n]o change in [his] numbers” and that he was “pretty confident” in his information. Id. at 2024. Fogel again took this to mean that Blaszczak obtained the information from a reliable inside source, and further inferred that the public announcement of the proposed rate cut (the timing of which was also nonpublic) was around the corner and thus less likely to change. On the basis of this confidential nonpublic 8 information, Fogel directed Deerfield to enter orders shorting stock in Fresenius Medical Care, a public company that would be hurt by the reimbursement rate cuts. CMS publicly announced the 12 percent rate cut on July 1, 2013, and Deerfield earned approximately $860,000 in profits from the trade. Blaszczak continued to provide Fogel with predecisional CMS information in advance of CMS’s announcement of the final ESRD rule on November 22, 2013. In particular, Blaszczak informed Fogel that the final ESRD rule would keep the 12 percent rate cut but would be phased in over three to four years. Based on that information, Fogel recommended that Deerfield enter orders to short stock in Fresenius and DaVita Healthcare Partners Inc. Deerfield did so, earning profits of approximately $791,000. Immediately after CMS announced the final ESRD rule, Fogel emailed his colleagues at Deerfield to praise Blaszczak for his ESRD reimbursement predictions: “I told u guys blazcack [sic] is the man. . . . [H]e has crushed it on these two rules both times round.” Supp. App’x at 10.