US market regulators implicated star hedge fund group SAC Capital Tuesday in what they called a record insider trading case that earned beneficiaries $276 million from privileged knowledge of drug test results.
SAC founder and star New York hedge fund billionaire Steven A. Cohen was in the spotlight as the Securities and Exchange Commission set insider charges against investment adviser Mathew Martoma and the hedge fund where he worked, CR Intrinsic Investors, a unit of Cohen's SAC.
Also charged was Sidney Gilman, a neurologist who was a paid consultant to drug makers Wyeth and Elan, who was accused of handing over to Martoma the companies' confidential reports on experimental drug tests.
That led to CR Intrinsic and another unnamed investment advisory company and its owner and founder to rack up huge gains in the 2008 scheme.
The SEC's complaint only referred to the others as "Investment Adviser A" and "Portfolio Manager A," but pointed out that the latter was also owner and founder of CR Intrinsic.
The Wall Street Journal, citing people familiar with the case, said that was a reference to Cohen, who created and runs SAC.
The SEC said that Gilman kept Martoma informed of the results of preliminary tests of Elan and Wyeth's jointly-developed Alzheimer's drug bapineuzumab.
In July 2008 Gilman handed over to Martoma detailed final results of the drug's clinical trial before they were publicly released.
The test results turned out to be disappointing, and led CR Intrinsic as well as funds managed by "Investment Advisor A" to liquidate $700 million in long positions in Elan and Wyeth and take huge short positions.
The funds ultimately sold more than $960 million in Elan and Wyeth securities in one week, netting $276 million in profits and avoiding losses, the SEC said.
The SEC complaint asks for disgorgement of gains and financial penalties; Gilman, who was paid $100,000 to advise Martoma, agreed to pay $234,000.
"Today's record-setting insider trading case reinforces the cold, hard lesson of so many other recent cases that when you trade on inside information, you're not just betting your money but also your career, your reputation, your financial security, and your liberty," said Robert Khuzami, SEC enforcement director.
"Now, yet another corrupt hedge fund manager has learned the high cost of ignoring that lesson."