A federal prosecutor said the insider trading charges against former hedge fund portfolio manager Mathew Martoma point to a cheating scheme of historic scale using what "might be the most lucrative inside tip of all time."
Federal authorities in New York have charged Martoma, 38, of Boca Raton, Florida, with using confidential information about an Alzheimer's disease drug trial to help reap more than a quarter of a billion dollars in illegal profits while working for the firm CR Intrinsic Investors LLC of Stamford, Conn.
The FBI says the scheme developed in 2006 after Martoma met Manhattan Dr. Sidney Gilman, 80, who was involved in the drug trial. U.S. Attorney Preet Bharara said the scheme made money both before and after a negative public announcement on the drug trial.
“What we see is an unholy alliance between an insider willing to divulge valuable non-public information and a money manager to whom that information is as good as gold,” April Brooks, of the FBI in New York, said in a statement. She called Martoma a "one-trick pony."
According to the FBI, Maroma was a portfolio manager specializing in health care stock. He received information about negative clinical trials and “dumped” millions of shares of Elan and Wyeth stock from the hedge fund.
Gilman's lawyer said he is cooperating with federal authorities and has a non-prosecution deal with prosecutors. Martoma's attorney calls his client an "exceptional" portfolio manager who succeeded "through hard work" and public information.
“Today’s record-setting insider trading case reinforces the cold, hard lesson of so many other recent cases that when you trade on inside information, you’re not just betting your money but also your career, your reputation, your financial security, and your liberty,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Now, yet another corrupt hedge fund manager has learned the high cost of ignoring that lesson.”
You can read the full Securities and Exchange Commission complaint here.