Regulators scrutinize sale of secrets by doctors

SEATTLE — The federal Securities and Exchange Commission is investigating the practice of doctors selling secrets about new drug research to Wall Street firms, SEC officials have confirmed.

The Seattle Times reported Sunday that it had found at least 26 cases in which doctors had leaked confidential and critical details of their ongoing drug research to Wall Street brokerages or hedge funds.

Sen. Charles Grassley, chairman of the Senate Finance Committee, responding to The Times’ report, asked the SEC and the Justice Department to investigate.

Legal experts say buying confidential information to help make investment decisions violates federal insider-trading law.

Investors can use the leaked information to make quick profits in the volatile biotech market at the expense of ordinary investors. Those who know in advance whether a drug is going to succeed or fail can buy stock low or sell it high to those who don’t know, taking advantage of unwitting investors.

Leaking details about ongoing research also can introduce bias into drug trials and possibly halt development of potentially life-saving drugs, biotech executives said.

Doctors typically receive $300 to $500 an hour to talk to Wall Street firms. Hedge funds and mutual funds pay as much as $1 million a year to matchmaker firms to set up the interviews.

Brokerage firms often report what the doctors divulged in research reports to select customers, The Times found.

The head of the Pharmaceutical Research and Manufacturers Association, the industry’s influential lobbying group, said Tuesday he supported the SEC investigation and called for stiff penalties for doctors who break agreements to keep their drug research secret.