Hedge Fund Manager Charged in Massive Insider Trading Case

Federal officials are calling it the largest insider trading case on record.

Mathew Martoma, a former manager at a unit of SAC Capital Advisor’s, was arrested and charged with insider trading.

Federal officials alleged that Dr. Sidney Gilman, a professor of neurology at the University of Michigan Medical School, fed Martoma inside information about a clinical trial of an Alzheimer drug – bapineuzumab.

Gilman headed the  for the drug and was scheduled to present negative findings on the drug in late July 2008.

Federal officials alleged that head of the announcement of the results of the trial, Gilman tipped Martoma, whose CR Instrinsic and another related firm then liquidated their combined holdings of Elan and Wyeth, worth $700 million and took short positions – eventually selling over $960 million worth of Elan and Wyeth, thus reaping profits and avoiding losses totaling $296 million.

“Yet another privileged hedge fund professional stands accused of insider trading,” said U.S. Attorney Preet Bharara. “The charges unsealed today describe cheating coming and going – specifically, insider trading first on the long side, and then on the short side, on a scale that has no historical precedent.”

“By cultivating and corrupting a doctor with access to secret drug data, Mathew Martoma and his hedge fund benefited from what might be the most lucrative inside tip of all time,” Bharara said. “As Martoma allegedly got sneak peeks at drug data, he first recommended that the hedge fund build up a massive position in Elan and Wyeth stock, and then caused the fund to shed those shares after getting a secret look at the unexpectedly bad results of a clinical drug trial.”

“And so, overnight, Martoma went from bull to bear. As a result of the blatant corruption of both the drug research and securities markets alleged, the hedge fund made profits and avoided losses of a staggering $276 million, and Martoma himself walked away with a $9 million bonus for his efforts.”

Both Martoma and Gilman were charged in a civil case brought by the Securitiers and Exchange Commission (SEC).

“Today’s record-setting insider trading case reinforces the cold, hard lesson of so many other recent cases that when you trade on inside information, you’re not just betting your money but also your career, your reputation, your financial security, and your liberty,” said SEC enforcement chief Robert Khuzami. “Now, yet another corrupt hedge fund manager has learned the high cost of ignoring that lesson.”

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