DOJ and SEC Bring Charges in $276 Million Insider Trading Case

by Michael P. Lewis on November 29, 2012

On November 20, 2012, DOJ and SEC charged Matthew Martoma, a former hedge fund portfolio manager at CR Intrinsic Investors (a subsidiary of SAC Capital), with participating in a $276 million insider trading scheme.  Martoma was charged with securities fraud and conspiracy to commit securities fraud; the government claims that he sold and shorted sales of drug companies Elan and Wyeth based on inside information from drug trials that had not yet been publicized.  According to the government, the scheme benefited Martoma’s hedge fund by $276 million.  The SEC’s complaint also charged CR Intrinsic Investors, Martoma’s former employer.

At $276 million, Martoma’s insider trading case dwarfs that of Galleon Group founder Raj Rajaratnam, who last year was sentenced to eleven years in prison for his role in a $53.8 million insider trading scheme.  Martoma’s attorney, Charles Stillman, denies the charges and alleges that Martoma succeeded through “hard work and the dogged pursuit of information in the public domain.”

The SEC complaint alleges that Martoma obtained inside information from neurologist Dr. Sidney Gilman, a paid consultant on Alzheimer’s drug experiments by Elan and Wyeth.  Gilman has already agreed to settle the SEC charges and pay a fine of more than $234,000.

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