The Securities and Exchange Commission and the Department of Justice on Tuesday charged hedge fund advisory firm CR Intrinsic Investors LLC, which is a unit of SAC Capital Advisors, and its former portfolio manager along with a medical consultant for their roles in a $276 million insider trading scheme. The SEC says in its civil complaint that the illicit gains in the alleged scheme make it the largest insider trading case ever charged by the agency. The DOJ filed a separate, criminal complaint on Tuesday.
The alleged scheme involved a clinical trial for an Alzheimer’s drug being jointly developed by two pharmaceutical companies.
The SEC alleges that Mathew Martoma, a former trader for the Stamford, Conn.-based hedge fund, illegally obtained confidential details about the clinical trial from Dr. Sidney Gilman, who served as chairman of the safety monitoring committee overseeing the trial. Gilman was selected by Elan Corp. and Wyeth to present the final drug trial results to the public.
According to the SEC, in phone calls that were arranged by a New York-based expert network firm for which he moonlighted as a medical consultant, “Dr. Gilman tipped Martoma with safety data and eventually details about negative results in the trial about two weeks before they were made public in July 2008. Martoma then caused several hedge funds to sell more than $960 million in Elan and Wyeth securities in just over a week.”
Gilman, who lives in Ann Arbor, Mich., where he works as a medical school professor, has agreed to settle the SEC’s charges and cooperate in this action and related SEC investigations. Gilman has agreed to pay more than $234,000 in disgorgement and prejudgment interest. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York on Tuesday announced criminal charges against Martoma and a non-prosecution agreement with Gilman. Martoma lives in Boca Raton, Fla.
Gilman has also agreed to a permanent injunction against further violations of the federal securities laws. The proposed settlement is subject to approval by the court, which also will determine at a later date whether any additional financial penalty is appropriate.