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Durus Manager Gets Hard Time

Scott Sacane, the disgraced hedge fund manager who claimed to have mistakenly accumulated a controlling stake in a tiny biotech company, is going to jail.

A U.S. judge sentenced Sacane on Tuesday to three years in federal prison. Sacane pleaded guilty in December 2005 to charges that he manipulated shares of two small biotech companies, Esperion and Aksys, by failing to disclose that his hedge fund had purchased huge equity stakes in both companies.

Sacane's sentencing comes nearly four years after his hedge fund, once worth $500 million, belatedly disclosed that it had amassed a 77% ownership stake in Aksys, a dialysis machine manufacturer, and a 33% stake in Esperion, a drug manufacturer.

Sacane initially said the fund "inadvertently" became the biggest shareholder in both companies, and denied doing anything wrong. He never explained, however, why Durus continued to keep buying shares even after cutting agreements with Aksys and Esperion to halt the purchases.

Aksys was delisted from Nasdaq in December and recently fetched 9 cents a share on the over-the-counter bulletin board. Esperion was purchased in 2004 by Pfizer (PFE - Get Report).

Sacane's bizarre defense never seemed credible, and most on Wall Street believed he was trying to manipulate the stock price of the two companies in order to inflate his hedge fund's returns.

"This prosecution and the term of imprisonment imposed today should send a strong message to hedge fund managers," says Connecticut U.S. Attorney Kevin O'Connor.

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