Insider trading indictment has SAC angle


The insider trading crackdown continues.

In the latest case announced by U.S. Attorney Phreet Bharara, prosecutors are targeting Mathew Martoma. He worked at CR Intrinsic, a unit of SAC Capital and allegedly generated $276 million in illicit profits by trading (or advising on trades) based on insider information gathered in 2008 from a neurology professor in charge of a clinical trial of an Alzheimer's drug in development by Elan Pharmaceuticals and Wyeth.

More specifically, the professor leaked results of the trial to Martoma, who then was able to exit his positions of the drug stocks and initiate large short positions that paid off handsomely, according to the complaint. The relationship between the doctor and the trader was apparently facilitated via an expert network, which have figured so prominently in other insider trading cases, notes Forbes.

The SAC Capital angle will of course fascinate many. No one currently at the firm, including founder Steven Cohen, has been charged with a crime, but he is without a doubt Portfolio Manager A in the complaint. Martoma is merely the latest in a string of prosecuted insider traders that had roots at the big hedge fund company. Indeed, in the ongoing trial of Anthony Chiasson and Todd Newman, the long shadow of SAC Capital has been present, because the firms at which the men worked, Level Global Investors and Diamondback Capital Management, were formed by former SAC employees. in the case of Martoma, the alleged action strikes quite close to Cohen. "Martoma, 38, is accused of advising Cohen to sell shares of Wyeth LLC (PFE) and Elan Corp. (ELN) before bad news about the drug's prospects was announced," Bloomberg notes. But the complaint is not clear on whether the tippee knew the information was illegally gained. But SAC profited to the tune of $276 million, which makes this one of the egregious incidents of insider trading ever. 

In the past, the company has expressed outrage over the actions of some of its former employees. But no one doubts that SAC is a target. In many ways, Cohen represents the ultimate Big Fish in the entire multi-year investigation. He would be bigger than Boesky, Milken and all the others. We take a look at the implications of all this on Cohen in another item.

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Another SAC manager caught in insider trading probe