Ex-Portfolio Manager Charged With 'Most Lucrative Inside Tip of All Time'
A former hedge fund portfolio manager was arrested yesterday on charges that he helped deliver what a prosecutor said "might be the most lucrative inside tip of all time," enabling investment advisers and their hedge funds to make more than $276 million in illegal profits.
The ex-manager, Mathew Martoma, was charged in Southern District Court in Manhattan with conspiracy to commit securities fraud and two counts of securities fraud in a scheme that stretched from 2006 through July 2008 while he worked for CR Intrinsic Investors of Stamford, Conn.
"The charges unsealed today describe cheating coming and goingspecifically, insider trading first on the long side, and then on the short side, on a scale that has no historical precedent," U.S. Attorney Preet Bharara said in a statement.
The FBI said the scheme developed after Martoma met a doctor in Manhattan involved in an Alzheimer's disease drug trial in October 2006. The FBI said in a criminal complaint that he later obtained confidential information related to the final results of a drug trial.
Martoma's attorney, Charles Stillman of Stillman & Friedman, called Martoma "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."
The Securities and Exchange Commission filed civil papers in the case against CR Intrinsic Investors, Mathew Martoma and Dr. Sidney Gilman. The civil complaint said the illegal money was earned in July 2008 when various hedge funds traded ahead of a negative public announcement involving the clinical trial results of an Alzheimer drug being jointly developed by Elan Corp. and Wyeth.
The SEC complaint said that Martoma, then a portfolio manager at CR Intrinsic, carried out the scheme with Gilman, a professor of neurology at the University of Michigan Medical School. The SEC said Gilman served as chairman of the safety monitoring committee overseeing the clinical trial and was selected by Elan and Wyeth to present the final clinical trial results at a July 29, 2008, medical conference.
Messages left with the University of Michigan Medical School were not immediately returned.
Gilman's lawyer, Marc Mukasey of Bracewell & Giuliani, said his client is cooperating with the SEC and the US Attorney's Office, and has entered into a non-prosecution agreement with federal prosecutors.