A former portfolio manager at SAC Capital has been arrested and charged pursuant to allegations of an insider trading scheme which led to the fund dumping shares of two pharmaceutical companies ahead of negative news which led to a windfall profit of $276 million.
ft: Agents with the Federal Bureau of Investigation arrested Mathew Martoma early on Tuesday at his Boca Raton, Florida home. Prosecutors with the US attorney’s office in Manhattan, which announced the charges, said it “is believed to be the most lucrative insider trading scheme ever charged, resulting in benefits to the hedge fund of more than a quarter of a billion dollars.”
It is understood that Martoma worked for CR Instrinic, a unit of SAC Capital, the $14 billion hedge fund run by Steve Cohen. The insider case brings to a total of six individuals who have worked for the fund linked to instances of insider trading. Hardly the good news that any fund would like to publicly parade as SAC Capital’s integrity is now being called into question and by extension that of Mr Cohen’s.
And the events as they are said to have unfolded:
According to the complaint, Mr Martoma, a trader of pharmaceutical stocks, in October 2007 learnt confidential results of an Alzheimer drug trial conducted by Elan and Wyeth. Mr Martoma was introduced to a doctor, Sidney Gilman, involved in the drug trial the year before through GLG, an expert network firm, which matches money managers with industry experts.
On July 17 2008, Mr Martoma allegedly obtained the final disappointing results of the drug trial from Mr Gilman and three days later, according to the complaint allegedly “spoke to the owner” of the hedge fund where he worked and recommended selling Elan and Wyeth before the drug trial results were made public.
The next day, according to the complaint, Mr Martoma and the hedge fund owner instructed a trader to sell its entire 10.5m share position in Elan and 7m shares of Wyeth. The hedge fund also placed a bet that the two stocks would drop.
And of course the stocks did drop, with Elan collapsing 42% and Wyeth dropping 12 %.
The wsj reports that Mr. Martoma was paid a bonus of $9.38 million in January 2009, a large part of which was attributable to his successful trading in Elan and Wyeth. Of note, Martoma received no bonus for his work in 2009 when his portfolio lost money.
Once again this brings into question the integrity of not only large funds such as SAC capital but that of the financial industry as a whole who have a history of predatory behavior. Which raises the real question are authorities finally going to rein in by now what has become conspicuously embarrassing behavior to even the ordinary layman? Or is this just another instance of too big to fail or to bring justice to….? And furthermore are we to really believe SAC’s Steve Cohen had no idea….?
Then there’s the following via fiercefinance:
Despite a lot of speculation, neither SAC Capital nor its founder have ever been charged with insider trading. Some think the government investigated the firm but couldn’t come up with anything that would sustain charges. It’s unclear if there is an active investigation of the company on-going. In the past, the company has expressed outrage over the actions of some of its former employees.
It will also be interesting to watch if regulators bring any other cases to the fore as well, as the above case suggests the culture of illicit behavior is common parlor for the folk of Wall st.
At present both Martoma and Cohen have declined to offer any comment. Can anyone guess why?
That said I have collected a couple comments off the web in an attempt to gauge public reaction to the latest rape courtesy of wall street. See what you think…
And of course, Moonbeam Cohen knew nothing…..When is his indictment being handed down? The idea that these guys are making money b/c of intelligence and hard work is one of the great ruses of all time.
Where is Blankfein’s indictment as well the other TBTF free-rent seeking bankster parasites that destroyed trillions in capital stock, and countless countries and citizen’s lives through their fraudulent conduct and schemes?