SEC alleges largest-ever insider-trading scheme: Ho boy!!!!
SEC alleges largest-ever insider-trading scheme
By Steve Goldstein, MarketWatch
WASHINGTON (MarketWatch) — The Securities and Exchange Commission said Tuesday it’s suing a hedge-fund manager and a doctor over what it says may be the largest insider-trading scheme ever charged.
The SEC alleged that $276 million in illegal profits or avoided losses were made by investment advisers and their hedge funds, by trading ahead of negative news in July 2008 on clinical trial involving an Alzheimer’s drug developed by Elan Corp. ELN -0.10% and Wyeth, now a Pfizer Inc. PFE -0.04% subsidiary.
Neither company is facing charges. Read related story on Elan-Wyeth trial.
In a suit filed with the U.S. District Court for the Southern District of New York, the SEC alleged that a professor of neurology at the University of Michigan Medical School tipped off a hedge fund run by CR Intrinsic to liquidate $700 million in positions in Elan and Wyeth as well as establish $960 million in short positions against the companies’ shares.
The move worked — the day after the negative data were released, Elan’s stock slumped 42% and Wyeth dropped 12%, according to a court filing from the U.S. Attorney, which also has brought charges.
The SEC has said the case may be the largest insider-trading scheme ever charged.
In addition to CR Intrinsic Investors, the SEC is suing Mathew Martoma, the portfolio manager who worked at CR Intrinsic, and Dr. Sidney Gilman, the professor. Gilman was the chairman of the safety-monitoring committee overseeing the clinical trial.
The U.S. Attorney’s office — without identifying Gilman by name — said the professor entered into a non-prosecution agreement to provide information.
Gilman was a paid consultant with an expert networking firm, the government alleges. Paid consultants to hedge funds have been the focus of previous insider-trading cases brought by the government.
At the end of 2008, Martoma received a $9.3 million bonus, a significant portion of which was attributable to the drug trial trades, the SEC alleges. Gilman received over $100,000 from the expert network firm, the agency added.
Martoma’s lawyer, meanwhile, said he will be exonerated.
“Mathew Martoma was an exceptional portfolio manager who succeeded through hard work and the dogged pursuit of information in the public domain. What happened today is only the beginning of a process that we are confident will lead to Mr. Martoma’s full exoneration,” said Charles Stillman of Stillman & Friedman in New York, in a statement.
Messages left with lawyers for CR Intrinsic Investors and Gilman were not immediately returned.