Insider trading convictions over healthcare leaks are voided by U.S. appeals court

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By Jody Godoy and Jonathan Stempel

NEW YORK (Reuters) - A divided federal appeals court on Tuesday threw out the insider trading convictions of four defendants, including two former hedge fund partners, over leaks from a U.S. healthcare agency about planned changes to Medicare reimbursement rates.

In a 2-1 decision, the 2nd U.S. Circuit Court of Appeals in Manhattan dismissed fraud and theft charges against former Deerfield Management Co partners Theodore Huber and Robert Olan, former U.S. Centers for Medicare and Medicaid Services (CMS) employee Christopher Worrall, and David Blaszczak, the founder of political consulting firm Precipio (NASDAQ:PRPO) Health Strategies.

The court agreed with prosecutors that the May 2018 convictions could not stand after a 2020 Supreme Court ruling that clarified when alleged misuse of property triggered federal fraud laws.

It also set aside conspiracy convictions against Blaszczak, Huber and Olan and ordered further proceedings, saying it was unclear whether jurors convicted them for conduct that the government no longer considered criminal.

A spokesman for U.S. Attorney Damian Williams in Manhattan declined to comment.

Prosecutors said that in a scheme that ran from 2012 to 2014, Worrall tipped Blaszczak about upcoming CMS decisions, including plans to lower reimbursements for radiation cancer treatment and kidney dialysis.

They said Blaszczak passed the information to Huber and Olan, who used it to make $7 million by trading healthcare stocks.

The appeals court upheld the defendants' convictions in 2019, but the Supreme Court ordered a reconsideration after ruling in the so-called "Bridgegate" case.

In that case, the Supreme Court overturned two defendants' wire fraud convictions for closing access lanes to the George Washington Bridge in Fort Lee, New Jersey, to punish that city's Democratic mayor for refusing to support Republican Governor Chris Christie's reelection.

The court said the alleged scheme did not aim to obtain "property" within the meaning of the underlying fraud statute.

Citing that ruling, the 2nd Circuit said the leaked CMS information was not that agency's "property" or a "thing of value" to support the fraud and theft claims.

Olan's lawyer Eugene Ingoglia said he looked forward to his client's "full exoneration" at a new trial. Lawyers for the other defendants were unavailable for immediate comment.

The case is U.S. v. Blaszczak et al, 2nd U.S. Circuit Court of Appeals, Nos. 18-2811, 18-2825, 18-2867 and 18-2878.