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Neurologist charged with insider trading

The phone calls began in 2007, if not earlier. After safety committee meetings regarding clinical trials of an experimental Alzheimer’s drug, neurologist  and committee-chairman Sidney Gilman would ring Mathew Martoma, a hedge-fund manager for CR Intrinsic Investors, based in Stamford, Connecticut, to fill him in on the latest data

According to a complaint filed by the US Securities and Exchange Commission (SEC) on 20 November, when the drug bapineuzumab failed a pivotal clinical trial in July 2008, Martoma got the jump on the rest of the public. He sold off shares of Wyeth and Elan, the two pharmaceutical companies developing bapineuzumab, well before the data were announced. The early tip earned hedge funds at his company and another, unnamed company a staggering $276 million. Gilman, a professor at the University of Michigan who told the SEC he regarded Martoma as “a friend and a pupil”, charged around $1,000 an hour in consulting fees for a total of about $100,000.

Insider trading is nothing new in the volatile biotech and pharma industries, where stocks soar and plummet based on clinical trial data. Regulators have sued or charged at least 75 people in insider-trading cases affecting the healthcare sector since 2008, according to Bloomberg. In 2005, the Seattle Times lifted the veil on this practice, identifying 26 cases in which doctors leaked information about their research to Wall Street.

Just one day before Gilman and Martoma were charged, the SEC filed a complaint against a ring of seven purported inside traders, including executives from Celgene and Sanofi, both pharmaceutical firms, and Stryker Corporation, a medical devices company. The ‘illicit gains’ in that case were $1.7 million.

But the Gilman/Martoma case stands out for the sheer magnitude of the payoff. The SEC says that it has charged over 410 individuals and entities with insider trading across all business sectors since October 2009. The total illicit gains in all of those cases was $875 million.

Martoma faces criminal charges in addition to the case brought by the SEC. Gilman, meanwhile, has agreed to a proposed settlement and will pay over $234,000.


  1. Report this comment

    Mark Taylor said:

    It is quite staggering that with profits of that magnitude, they did not believe it would go unnoticed.

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