Mathew Martoma, a former portfolio manager of SAC Capital Advisors LP, is facing an insider-trading lawsuit filed by the Securities and Exchange Commission (SEC). U.S. prosecutors described the case as “the most lucrative insider-trading scheme ever.”
The complaint alleged that the affiliated investment advisers and their hedge funds illegally gained more than $276 million, or avoided losses in July 2008, by trading before the negative public announcement of the final clinical trial results for the Alzheimer drug jointly developed by Wyeth and Elan Corporation, plc (NYSE:ELN).
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Martoma allegedly arranged the trades of a certain hedge fund for its shares in Wyeth Limited (NSE:WYETH) and Elan Corporation, plc (NYSE:ELN). The hedge fund profited $22 million and avoided $56 million in losses. Martoma is facing one count of conspiracy and two counts of securities fraud.
Based on the lawsuit, Martoma who was then working as portfolio manager of CR Intrinsic Investors, an unregistered investment adviser, received material and non public information regarding the ongoing clinical trial of the Alzheimer’s drug from Dr. Sidney Gilman, professor of neurology at the University of Michigan. He was the chairman of the Safety Monitoring Committee of the clinical trial.
According to the complaint, when Martoma received the actual and detailed results of the clinical trial from Gilman, the hedge fund portfolios and investment advisers managed by CR Intrinsic liquidated their combined long-positions in Elan and Wyeth worth more than $700 million. They also made substantial short positions in Elan Corporation, plc (NYSE:ELN) and Wyeth Limited (NSE:WYETH) worth approximately $960 million in securities and eventually sold it in just one week.
According to the prosecutors in the case, Martoma received a $9.4 million bonus in January 2009, based on the profits made by hedge funds from their trades in Wyeth and Elan Corp.