As you may have heard, earlier today, Mathew Martoma, a former portfolio manager in SAC Capital’s CR Intrinsic unit, was charged with allegedly running “the most lucrative insider trading scheme ever,” netting $276 million for the fund. He did so based on information that was given to him by Sid Gilman, a University of Michigan neurologist and chair of a “safety-monitoring committee that oversaw a clinical trial by Wyeth LLC and Elan Corp.  into whether the drug bapineuzumab, or bapi, was safe for patients with mild-to-moderate Alzheimer’s disease.” Over an 18-month period, Gilman and Martoma met 42 times, in addition to emailing and chatting over the phone. For example:

In the spring of 2008, the doctor told Martoma that bapi was “reasonably safe for a drug of its kind,” according to the FBI. A news release by Wyeth and Elan on June 17, 2008, announced a high-level summary of the drug trial, saying detailed results would be released on July 29. By June 30, the hedge fund amassed holdings of $328 million in Elan equity securities and $373 million in Wyeth securities, according to the FBI. That began to change after Elan flew the doctor to San Francisco on July 15, 2008, to learn the detailed results of the trial, according to the FBI.“The efficacy data was negative, particularly in comparison with market expectations following the June 17 press release,” according to the FBI complaint. On July 17, Elan gave Gilman an encrypted PowerPoint presentation that summarized the results and that was marked “Confidential, Do Not Distribute.” Gilman and Martoma then spoke for an hour and 45 minutes before the doctor sent his friend the PowerPoint with a password needed to open it, according to the SEC.

For his assistance, Gilman was paid approximately $108,000. And while the amount was small in comparison to the bonus of $9.38 million Martoma was paid in January 2009, based on his trades in Elan and Wyeth, and one could make the argument that Martoma screwed Gilman over when it came to compensation, an argument that doesn’t seem plausible is that Gilman was just an innocent old man who had no idea what he was doing when he sent a portfolio manager “an encrypted PowerPoint presentation that summarized results and that was marked “Confidential, Do Not Distribute.” And yet!

“At the center of the scheme was the cultivation and corruption of a renowned medical doctor,” U.S. Attorney Preet Bharara said today at a news conference in Manhattan. “He is prepared to testify in connection with a non-prosecution agreement.”

For those hoping for a little clarity re: why or how Gilman is to be viewed as a victim who is blameless in all this, Bahara’s answer to that is, fuck you, that’s why. Make he’ll explain in more detail at a later time or maybe he won’t.

Bharara declined to say why the doctor, whom he didn’t name, wasn’t charged. “As some future date, there may be more information about that,” he said today.

Ex-SAC Manager Was ‘Pupil’ of Doctor Accused of Tips [Bloomberg]

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Comments (14)

  1. Posted by InfiniteGuest | November 20, 2012 at 6:00 PM

    Gilman didn't do it for the money — he has plenty of money. He did it for love.

  2. Posted by Victim-less | November 20, 2012 at 6:01 PM

    Where does Bharara call Gilman a victim? He is clearly an un-indicted co-conspirator cooperating with the prosecution, and since he is the key witness to a bigger fish, he successfully negotiated a non-prosecution agreement.

    That's not a victim, that is somone who rolled over reeealllyy fast and easy. Not saying Gilman didn't deserve punishment, just saying the DOJ didn't call Gilman a victim.

  3. Posted by guest | November 20, 2012 at 6:04 PM

    i'm no lawyer, but I think the "non-prosecution agreement" has something to do with why he is being non-prosecuted. probably no case without him, and in exchange for not wrapping up a distinguished medical career by dying in prison, the good doctor is going to become a good witness.

  4. Posted by BessLevin | November 20, 2012 at 6:16 PM

    Bharara never used the word victim, which is why there aren't quotes around it in my post. Plenty of people cooperate with the government in order to get a better deal for themselves (see: Noah Freeman, et al), but I don't remember other cases in which the government went out of its way to say that said person had been "cultivated and corrupted," as though he was a child who did something wrong after having been targeted and brainwashed by adults who should have known better.

  5. Posted by Dr_Rosenrose | November 20, 2012 at 6:24 PM

    I think you're right Bess, but that pic does sort of suggest "lobotomy".

  6. Posted by Bandersnatch | November 21, 2012 at 7:19 AM

    Was that wrong? Should I have not done that? I tell you I gotta plead ingnorance on this thing because no one said anything to me at all when I first started here about giving confidential information to hedge fund managers being frowned upon. You know, cause I've worked in a lot of pharmaceutical companies and I tell you peope do that all the time.

  7. Posted by guest | November 21, 2012 at 9:03 AM

    $276M > $9.3M > Doctor's Salary > $101K.

    Not exactly a victim but surely a chump.

  8. Posted by Guest | November 21, 2012 at 9:32 AM

    This is probably the truest reincarnation of that quote.

  9. Posted by Guest | November 21, 2012 at 10:42 AM

    To be fair, the SEC is still going after him in a civil action for fraud, he's just off the hook criminally.

  10. Posted by Private equity | November 21, 2012 at 10:55 AM

    Nice to see that crime still pays

  11. Posted by goblue | November 21, 2012 at 11:13 AM

    I'd imagine part of his non-prosecution agreement has a clause about reputational damage – ie if he cooperates with the investigation, he's to be portrayed as an innocent and naive doctor that got connected into bad things by wall street fat cats. Presumably the feds reaaally wanted the case (Hi Steve!) and he'd have hard time getting on pharma boards with history of willingly selling info money.

  12. Posted by Frank Walshingham | November 22, 2012 at 12:11 AM

    The good Dr. Gilman should immediately be fired and escorted off U of M premises. He brings disgrace both to a great university and his profession. The Michigan Board of Medicine should revoke the guy's license. Doesn't the Hippocratic oath say do no harm? This guy's lack of integrity has undermined the very under pinnings of our financial system with his greed. How can the average citizen have any confidence that their hard earned dollars will be safe on Wall Street when people do what he did.

    The guy was caught red-handed in this scam. It is outrageous that just because he is singing to the Feds that they agreed not to prosecute Gilman. The good doctor belongs breaking rocks in a federal prison the rest of his days. The sole reason that investors lost nearly 300 million dollars of value is solely because of Sid Gilman's greed and corruptibility. And any university should know that when their professors are being paid $1000 an hour, that that is payola, not a legitimate consulting fee. Such activity should be barred when these big professors are already receiving more than generous compensation from us taxpayers! Shame on you, Dr. Gilman!

  13. Posted by guest | November 22, 2012 at 12:37 AM

    i like ice cream.

  14. Posted by Anonymous | November 25, 2012 at 8:29 AM

    There are other aspects to this case which deserve investigation.
    1. the immediate and overly negative press coverage (looks like somebody primed it)
    2. the after hours selling which began when Gilman started to speak, but before he had delivered any results
    3. the weird decision by Elan to issue a positive general PR in june and a more detailed negative one in July
    4. Elans CEO positive conference calls prior to the July 31 presentation