UPDATE 1-NY Hedge fund used Washington tips as 'secret sauce' -U.S. prosecutor

prosecutor@ (Recasts to include opening statements)

NEW YORK, April 2 (Reuters) - A federal prosecutor said a political consultant used his network of friends in Washington as his "secret sauce" to uncover market-moving tips about policy decisions from a U.S. healthcare agency, enabling a big New York hedge fund firm to conduct insider trading.

The comment by Assistant U.S. Attorney Joshua Naftalis in Manhattan federal court came on Monday at the start of an insider trading trial of four defendants, examining the passing of "political intelligence" to Wall Street from inside the Beltway.

Prosecutors accused the consultant, David Blaszczak, of accepting tips from co-defendant Christopher Worrall, who worked for the U.S. Centers for Medicare and Medicaid Services, about government plans such as cutting reimbursement rates for radiation cancer treatment and kidney dialysis.

Prosecutors said Blaszczak, a former CMS employee, then passed tips to former Deerfield Management Co partners Ted Huber and Rob Olan, collecting fees while that hedge fund made $7 million of illegal profit.

The four defendants have pleaded not guilty. CMS decides how much the government will reimburse healthcare companies.

Not all of Blaszczak's tips panned out, but Naftalis told jurors that "just because the defendants didn't bat 1.000 didn't mean they weren't playing the game."

He said Blaszczak's "network of friends was his secret sauce," while Deerfield was "in it for the money" and Worrall hoped his tips would lead to a good job outside the government.

The alleged scheme showed an "unbroken criminal chain that went from Washington to New York," Naftalis said.

But in his opening statement, Blaszczak's lawyer David Patton said "there was no secret mole inside" CMS giving his client inside information.

Patton told jurors there would be "zero allegations" that anyone was paid for providing tips, and that CMS information was "constantly" shared outside that agency.

"If New York is the town that never sleeps, D.C. is the city that never shuts up," Patton said.

A former Deerfield partner, Jordan Fogel, has pleaded guilty and is expected to be a key government witness.

Deerfield agreed in August to pay $4.6 million to settle a related U.S. Securities and Exchange Commission civil case. It did not admit or deny wrongdoing.

Blaszczak was also charged with passing confidential tips to the hedge fund Visium Asset Management, which shut down in 2016. That part of the case does not involve the other defendants. (Reporting by Brendan Pierson and Jonathan Stempel in New York Editing by Leslie Adler and Richard Chang)