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Tue November 20, 2012
UM professor named in $276 million insider trading scandal
In what is being called "the most lucrative insider trading scheme ever charged," federal prosecutors are filing a criminal case against Mathew Martoma, a former trader at a division of SAC Capital.
Here's the press conference where the charges were described:
Martoma is charged with making around $276 million in avoided losses and combined profits on a deal based on insider information from a University of Michigan professor.
Prosecutors allege Martoma received the information from University of Michigan neurology professor Sidney Gilman. Gilman, 80, is an expert on Alzheimer's disease, and he chaired a committee that looked over clinical trials for an Alzheimer’s drug.
Peter Lattman of The New York Times reports Gilman has entered into a "non-prosecution agreement with the U.S. attorney's office in Manhattan."
Mr. Gilman connected with Mr. Martoma through a New York-based expert network firm. Expert network firms became popular on Wall Street last decade, linking Wall Street money managers to specialists in various industries to help give them an edge on their investments. Expert networks have been a focus of the government’s widespread crackdown on insider trading at hedge funds...
According to the complaint, between 2006 and 2008, Mr. Martoma consulted with the neurologist on dozens of occasions about the preliminary results of the drug trial and accumulated a roughly $700 million position in the stocks of Wyeth and Elan.
The Wall Street Journal's Law Blog has more on how the alleged information was traded:
As a paid consultant for an expert-network firm, the 80-year-old Dr. Gilman allegedly gave Mathew Martoma, a former portfolio manager at SAC unit CR Intrinsic, “material, nonpublic information” about the trial between 2006 and 2008. The SEC said Dr. Gilman also gave Mr. Martoma the final results of the trial before the public July 2008 announcement of the results.
Mr. Martoma traded on that information, resulting in profits and the avoidance of losses of $276 million. Dr. Gilman was paid more than $100,000 by the New York-based expert network.
The New York Times reports Martoma is the seventh person who worked at SAC caught up in insider trading.
Michigan Radio's Kate Wells is following this story and will have more for us later.
Here's the complaint that was filed today: