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, 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, 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's 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, said his client was cooperating with the SEC and the US Attorney's Office, and has entered into a nonprosecution agreement with federal prosecutors.
The SEC said that leaks by Martoma caused hedge fund portfolios managed by CR Intrinsic, as well as hedge fund portfolios managed by an affiliated investment adviser, to liquidate their combined long positions in Elan and Wyeth, worth more than $700 million. It said he also caused them to take substantial short positions and to sell more than $960 million in Elan and Wyeth securities in just over a week.
The massive repositioning, the SEC said, allowed CR Intrinsic and various hedge funds to collective reap illicit profits and avoid losses of $276 million.
"As alleged, by cultivating and corrupting a doctor with access to secret drug data, Mathew Martoma and his hedge fund benefited from what might be the most lucrative inside tip of all time," Bharara said.