Steven A. Cohen’s SAC Capital Advisors LP is at the center of the biggest insider case ever filed in a sweeping U.S. crackdown on illicit hedge fund trading -- one that focuses on the burgeoning exploitation of secret information on volatile health care stocks.
In doing so, the new case against a former Cohen lieutenant has brought the five year probe beyond the realm of technology stocks and into the busy underworld of health care industry securities fraud. The charges against former SAC portfolio manager Mathew Martoma also place U.S. prosecutors closer than ever to Cohen, the hedge fund’s billionaire owner and founder, in the broadest probe of insider trading in a generation.
Martoma, according to prosecutors, urged Cohen to buy Wyeth and Elan shares based on good news about the Alzheimer’s drug trial, then advised him to liquidate SAC’s $700 million position after getting a secret tip that the trial had gone badly.
Cohen, 56, started SAC Capital in 1992 and his hedge fund manages $14 billion. He has been deposed by SEC investigators about trades made close to news such as mergers and earnings that generated profit for his fund, a person familiar with the matter said in June. The person asked not to be identified because the investigation wasn’t public.
“In this instance, what we see is an unholy alliance between an insider willing to divulge valuable, nonpublic information and a money manager who knew that information is as good as gold,” April Brooks, an FBI agent in charge of the New York office’s criminal division, said at the news conference yesterday.
The doctor passed along the generally positive safety data about the trial, according to the criminal complaint, which doesn’t identify the neurologist by name. The SEC’s complaint names Gilman as Martoma’s source.
On July 27, an unidentified “Senior Trader” at Martoma’s company e-mailed Cohen about the week’s trading activity, according to prosecutors.