Accused SAC Insider-Trader Indicted

Jan 2 2013 | 12:52pm ET

More than a month after his arrest, former SAC Capital Advisors portfolio manager Mathew Martoma has been formally indicted.

Martoma was indicted on securities fraud and conspiracy charges on Dec. 21, the Friday before Christmas. Prosecutors say he earned SAC $276 million in the "most lucrative" insider-trading scheme in history, trading on confidential information about Alzheimer's disease drug trials.

Martoma was arrested on Nov. 20 and originally charged in a criminal complaint, as the government reportedly sought his cooperation, as it has won the cooperation of his alleged source. Prosecutors reportedly want Martoma's help in building a case against SAC founder Steven Cohen; the case against Martoma is the first to refer specifically, if obliquely, to Cohen.

But the indictment was seen by some as a sign that Martoma is continuing to reject a deal with the government. He faces up to 20 years in prison if convicted.

"Though disappointing, today's events come as no surprise," Charles Stillman, Martoma's lawyer, said. "The simple fact is that Mathew Martoma did not trade on inside information, is innocent of all these charges and we look forward to his ultimate vindication."

SAC is reportedly paying Martoma's legal bills, and the firm has repeatedly said it and Cohen acted appropriately when trading on Martoma's advice. The case against Martoma includes no suggestion that Cohen knew he was receiving confidential information.

But while no criminal case against Cohen or SAC has been filed, the hedge fund faces a Securities and Exchange Commission lawsuit. The regulator may extend those charges to Cohen himself, as well.

Martoma allegedly earned SAC some $276 million trading on confidential information about Alzheimer's drug trials at pharmaceutical companies Elan Corp. and Wyeth LLC. The tips were allegedly supplied by a neurology professor, Sidney Gilman, who headed the safety committee overseeing the drug trials and also worked for an expert network. Gilman, who was paid more than $100,000 for meetings with CR Intrinsic and another firm, was named in the SEC complaint along with Martoma and CR Intrinsic. He met with Martoma 42 times, the SEC said.


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