United States: SEC And U.S. Attorney's Office Continue Their Pursuit Of Criminal Actions Against Purveyors Of "Political Intelligence"

On May 24, 2017, the United States Attorney's Office for the Southern District of New York and the Securities and Exchange Commission (SEC) launched their latest criminal and civil salvos against prohibited insider trading by charging that secret government information – inside "political intelligence" – was criminally used, in violation of the Stop Trading on Congressional Knowledge Act (STOCK Act), for illicit personal enrichment. The government's indictment and the SEC's civil complaint charge that an insider at the federal Centers for Medicare and Medicaid Services (CMS) tipped a former government colleague, current consultant, and "friend," who in turn tipped two hedge fund health care analysts, to illegally work a scheme that generated $3.9 million in profits. The consultant's political intelligence firms received $263,000 in "consulting fees" from the hedge fund. While the facts of the case suggest a familiar pattern of using material non-public information (MNPI) for trading gains, the fact that the agencies are expanding their efforts into the realm of political intelligence creates new cause for concern at such firms.

What is clear is that political intelligence firms will need to be as vigilant in adopting rigorous insider trading policies as are expert network firms and other purveyors of "inside insights," whether material information is disclosed by private industry or government insiders.

Prior Enforcement Actions Under the STOCK Act

As we have previously chronicled, the STOCK Act explicitly applies federal insider trading laws to congressional members and staffers. In classic insider trading cases, liability arises for both the insider (one who breaches his or her fiduciary duty to the company by trading on MNPI, or disclosing it for a personal benefit) and for the "tippee" (one who trades on that information, knowing it has, at one time, been disclosed in exchange for a personal benefit). Enforcement of the STOCK Act, however, has raised serious concerns regarding what exactly is "non-public" information in the political realm and what is a "personal benefit" for a government employee.

Since the STOCK Act became law, the SEC has investigated, inter alia, legislative staffers for providing tips about an unexpected increase in Medicare reimbursements, and executive agency staffers who tipped investment analysts about the CMS's investigation of Medicare coverage for an immunotherapy drug as well as concerns about a potential new diabetes drug. In this most recent indictment, the government has now expanded its focus to sights on tipped information from a government insider, in this case regarding a regulatory rules change from the CMS. Each of these investigations suggests an aggressive push by the SEC (and, in many cases, the DOJ) to a new realm of insider trading prosecution: tipping of (non-public) government information to political intelligence firms that advise institutional investors or, in some cases, institutional investors directly.

Facts from the Blaszczak/Worrall Indictment

On May 24, 2017, the SEC filed a complaint in the Southern District of New York against David Blaszczak, Christopher Worrall, Theodore Huber, and Jordan Fogel, alleging they illegally engaged in insider trading based on material non-public government information, in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 and Section 17(a)(1) of the Securities Act of 1933. (See https://www.sec.gov/litigation/litreleases/2017/lr23841.htm and https://www.sec.gov/litigation/complaints/2017/comp-pr2017-109.pdf.)

In a parallel action, the U.S. Attorney's Office for the Southern District of New York announced related criminal charges against Blaszczak, Worrall, Huber, and Robert Olan. Fogel was charged separately and has already pleaded guilty. (See https://www.justice.gov/usao-sdny/press-release/file/969541/download.)

According to the SEC, Worrall, a health insurance specialist at the CMS, provided his former colleague and close friend, Blaszczak, with key details about three pending decisions by the CMS. These decisions would affect the refunds companies received from Medicare for providing services or products related to cancer treatments or kidney dialysis. Blaszczak, who now works as a political intelligence consultant, allegedly provided this information to Huber and Fogel, analysts at a hedge fund advisory firm that had retained Blaszczak's services (styled in the complaint as "Adviser A"); Robert Olan was a partner at that firm. Based on this non-public information, the analysts recommended that the firm, on behalf of certain hedge funds, buy and sell securities for those health care companies that would be affected by the CMS's decisions. These trades yielded roughly $3.9 million in profits. In exchange for his inside information regarding CMS decisions, the hedge fund advisory firm allegedly paid Blaszczak hundreds of thousands of dollars, from May 2012 through November 2013.

Blaszczak was also implicated in a separate scheme, for tipping MNPI about the CMS's reimbursement rates for home health providers to Christopher Plaford, a portfolio manager who traded on the information at another health care-focused hedge fund. Plaford, a government cooperator, pleaded guilty to insider trading securities fraud based on his illegal trading on inside information – one of seven felonies to which he pleaded guilty as part of a deal with the government. Plaford, who became a cooperating witness for government authorities investigating the firm, testified to this effect in a 2013 trial.

The SEC charged that Blaszczak left a damning paper trail of evidence, documenting his awareness that he was trafficking in non-public information. For example, Blaszczak repeatedly bragged about his access to confidential CMS information and, in an email to Fogel criticizing another analyst's different predictions, noted the analyst "doesn't know anyone at the CMS. His guesses are just wild random guesses." Blaszczak also specifically mentioned Worrall and his access to certain CMS databases in communications with clients. The U.S. Attorney's indictment documents even more incriminating communications involving Blaszczak, including some with the hedge fund advisory firm defendants, in which they discussed seeking information from Worrall, and some with Worrall in which Blaszczak discussed the possibility of lucrative private sector jobs.

As for Huber and Fogel, the SEC alleges that they knew, should have known, or consciously avoided knowing that Blaszczak was providing them with confidential CMS information because he kept providing them accurate information ahead of public announcements, and they were aware he was a former CMS employee who remained friends with ongoing CMS employees. The SEC's complaint does not, however, specify how Huber and Fogel knew that Blaszczak's source was a CMS insider who provided the tips in exchange for a "benefit."

Worrall, as an employee of the CMS and an executive branch employee, is subject to the STOCK Act as well as the CMS's Employee Nondisclosure Policy, which specifically prohibits him from disclosing "non-public, confidential, privileged, or proprietary" information unless authorized by law. The CMS's policy defines "non-public information" as information that an employee gains by reason of his or her employment with the agency and that he or she knows or reasonably should know is not available to the general public. The policy further warns employees that some information may be "market sensitive," meaning "its disclosure may have stock or bond market implications." Accordingly, an employee may not use such information to give investment tips to others.

Non-Public Information

The SEC's complaint alleges that the material, non-public CMS information concerned "reimbursement amounts under the PPS [prospective payments systems] and fee schedule rules, including information contained in confidential briefing papers and meetings where reimbursement proposals were discussed." As the complaint explains, each year the CMS issues proposed and final rules, setting Medicare reimbursement rates for the next calendar year. The agency normally publishes the releases concerning the rate settings after the market closes because the releases may impact stock prices of the affected companies.

At the same time, this type of information is often shared with other government employees, particularly congressional staffers and other agency employees, as needed. Indeed, as covered in a prior client alert, these prospective Medicare reimbursement rates were the subject of yet another political intelligence insider trading enforcement action against a congressional aide who leaked them to a law firm lobbyist, who in turn passed them along to an analyst for various institutional investors.

In yet another action involving the leaking of market-moving agency decisions, in 2016 the SEC brought charges against Marwood Group Research LLC after Marwood's analysts allegedly disseminated information to clients regarding the CMS's investigation of Medicare coverage for an immunotherapy drug and about the FDA's safety concerns about a potential new diabetes drug. As we previously reported, the SEC referred to the intelligence only as "potential" MNPI: It decided not to bring insider trading charges against Marwood for its dissemination of the information but rather brought only books and records violations against the firm.

By contrast, the SEC did not hesitate to characterize FDA drug approval decisions as MNPI. For example it sued Gordon Johnston, a former FDA official, and charged him with insider trading. The SEC accused Johnston of deceiving former colleagues into sharing information about imminent agency approvals of certain generic drugs by concealing his consulting relationship with a hedge fund and then disclosing the information to the fund in exchange for a consulting fee.

These scenarios illustrate the breadth and complexity of applying insider trading laws to information generated within the legislative and executive branches: Unlike in a private company, the line between "public" and "non-public" information can become increasingly gray. Although FDA approval decisions for a specific drug manufactured by a specific company may readily be acknowledged as non-public information, considering the spectrum, from company-specific agency decisions to industrywide legislative deliberations, may well generate increasingly difficult determinations.

Similarly, it remains unclear what government information – and in particular what information in the legislative branch – is "non-public" in the traditional private industry sense. As we have said before, the "open secret" in Congress is that there are no secrets. Congressional representatives are normally expected to make their positions clear (often through staffers) and to inform the public how they intend to vote or whether they oppose certain legislation. Legislative personnel – both representatives and staffers – are also encouraged to predict important outcomes such as assuring constituents that a beneficial bill will pass.

Worrall's Personal Benefit

What did Worrall receive for his role? According to the SEC, he tipped Blaszczak "because of their close personal friendship and in exchange for past and potential future pecuniary gain, including employment or business opportunities, which were financially valuable to Worrall." These purported pecuniary gains included Blaszczak introducing Worrall to a contact at a health care policy firm, who then interviewed him for a job in the private sector. Worrall did not take the job but supposedly leveraged a promotion at the CMS in December 2012, which included a $10,000 raise and "new supervisory responsibilities."

It is arguable that Worrall's receipt from Blaszczak, of the benefits of friendship or professional networking, or the prospect of private sector employment into advancement through such networking may not have satisfied the "personal benefit" standard under the Second Circuit's decision in U.S. v. Newman. Yet the allegations likely are enough to do so after the Supreme Court's decision in U.S. v. Salman, which essentially rejected the Second Circuit's narrow interpretation of a personal benefit. In the wake of Salman, whenever an individual provides a "gift of confidential information to a trading relative or friend ... [t]he tip and trade resemble trading by the insider himself followed by a gift of the profits to the recipient." The SEC's allegations here obviously signal the government will continue to utilize this broader, more aggressive interpretation of what constitutes a "personal benefit," post-Salman.

Huber's and Fogel's Knowledge of Worrall's Personal Benefit

The most intriguing aspect of the SEC's complaint might be the dearth of specific allegations regarding what remote tippees like Huber and Fogel knew of Worrall's potential benefit for providing the information. Instead of alleging any actual or constructive knowledge of a specific benefit on their part, the SEC instead appears to rely on a couple "common sense" syllogisms that almost take this scienter element for granted:

  1. They "knew, should have known, or consciously avoided knowing" that Worrall would only disclose confidential information in exchange for some benefit. (The specific allegation was that they were on some level aware that "Blaszczak's source was a CMS insider who provided the tips in exchange for a benefit.")
  2. They "knew, should have known, or consciously avoided knowing" that "CMS personnel often left the CMS for lucrative private sector jobs."
  3. They "knew, should have known, or consciously avoided knowing" that "Blaszczak was a former CMS employee who remained friends with CMS employees."

The DOJ indictment goes even further: The government alleges that Worrall was Blaszczak's "close friend and former CMS colleague," and that Huber and Robert Olan (Fogel had already pleaded guilty) knew the CMS inside sources included Blaszczak's "former colleagues with whom he had close personal relationships, and who were prohibited from disclosing such information to CMS outsiders."

While the myriad emails between Worrall and Blaszczak appear to lay out fairly compelling evidence of benefit afforded to the original tipper of information, the indictment raises the question of what exactly the remote tippees (here, Huber and Fogel) actually knew about that benefit. The cases already in the judicial pipeline in the wake of Salman will undoubtedly provide more visibility on the issue of how much leeway jurors will be given by the courts in inferring such knowledge; until then, the charges against those remote tippees suggest the SEC and the DOJ believe very little nexus is necessary.


The most recent charges against Worrall, Blaszczak, and their tippees continue to signal a deliberate expansion by the government – now armed with the STOCK Act – to target insider trading in the realm of political intelligence allegedly disclosed, from both the executive and the legislative branches, for self-enrichment, in violation of duties owed to one's (governmental agency) employer. As such, political intelligence and investment analysts will need to be particularly vigilant when dealing with any "inside" information about impending regulatory decisions. Perhaps even more concerning, in the wake of the Supreme Court's decision to broaden the definition of a "personal benefit" in Salman, the government may not have a substantially high burden to establish "tippee" liability – even where the tippees are two or three degrees removed – so long as the tippees had some appreciation for the fact the government employee provided the tip for some benefit, however ill-defined it may be.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions