Insider trading trial puts SAC hedge fund under further pressure

Hedge Fund

A trial starting this week over what US prosecutors say is the most lucrative insider trading scheme ever is expected to bring further pressure on Steven A Cohen, the founder of the SAC Capital Advisors hedge fund.

Mathew Martoma, a former employee of SAC Capital, is accused of orchestrating a $276m (£168m) scam that illegally profited from insider knowledge on a new Alzheimer's drug. He has pleaded not guilty.

Martoma's trial is part of a larger, multi-year investigation into the fund by federal agencies. Cohen and SAC have previously denied any wrongdoing in the case, and declined to comment further.

The Manhattan trial is the 11th insider trading case brought by Preet Bharara, the US attorney for the southern district of New York. So far he has not lost an insider trading case and has secured 77 convictions. In December another former SAC Capital employee, Michael Steinberg, was found guilty of insider trading in technology stocks including Dell.

SAC Capital was fined $1.8bn last year after prosecutors accused the company of fostering a culture of insider trading "that was substantial, pervasive, and on a scale without known precedent".

Announcing charges against Martoma last year, Bharara said the case was "on a scale that has no historical precedent". The trial is expected to draw in Cohen, who has not been charged with any wrongdoing. He held a 20-minute conversation with Martoma shortly after his employee had allegedly been given insider information but has said he cannot recall what was discussed.

Martoma, 39, is accused of illegally trading on insider information he had gained on Elan and Wyeth, two drug firms working on an experimental Alzheimer's drug known as bapineuzumab.Two doctors – Sidney Gilman and Joel Ross – hired by Elan to consult on a clinical drug trial are expected to testify that they supplied information to Martoma that the drug trials had run into difficulties. Martoma and Gilman met on 19 July 2008, according to prosecutors. When the stock markets opened again on 21 July SAC began unwinding its holdings in the drug companies, betting their share prices would fall. The move earned SAC $276m in profits and avoided losses, prosecutors allege.

Martoma, free on a $5m bail, has been charged with one count of conspiracy to commit securities fraud and two counts of securities fraud. Each fraud count carries up to 20 years in prison.

Powered by article was written by Dominic Rushe, for The Guardian on Monday 6th January 2014 21.51 Europe/London © Guardian News and Media Limited 2010


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