A Victim of Insider Trading? Well, Not Quite
Senior Editor, CNBC.com
Someone named Ronald Weiland reckons that he is a victim of alleged insider trading at SAC Capital Advisors. And while he certainly lost a lot of money, I can't see how SAC had anything to do with that.
It certainly was easy to lose money trading Elan in 2008. That year, Elan had been testing an Alzheimer's drug called bapineuzumab. The stock ran up sharply in the weeks leading up to the July release of the clinical results. The results were not encouraging and the stock dropped 42 percent on July 30, the first trading day following the release.
So how did SAC victimize Weiland? Let's go to the Post:
Weiland now believes that he and other investors were played by Steve Cohen's SAC Capital Advisors when the hedge fund giant — acting on information from a former trader accused of insider trading — abruptly dumped its huge long position in Elan and Wyeth and started shorting both stocks
"They had information that I didn't have access to," said Weiland, a 53-year-old former consultant for Arthur Andersen. "It's totally a matter of seeing very wealthy people being able to game the system."
That's about all there is to Weiland's claim. Note that Weiland's loss would have been exactly the same — to the penny — if SAC Capital had never existed or wasn't trading in Elan shares. Which means that SAC's trading didn't cause any harm whatsoever to Weiland. What hurt his investment was the ineffectiveness of bapineuzumab.
Weiland's loss also could not have been avoided if SAC had some sort of duty to disclose the information that its trader, Matthew Martomo, had allegedly obtained from a doctor familiar with the clinical trials. Let's say that SAC gets the information about Elan on July 17 and immediately announces that the trials are going poorly. The stock would have dropped by 42 percent a few days earlier and Wieland's losses would have been exactly the same.
But, of course, SAC Capital had no such legal duty to disclose the information. It may have had — if the facts alleged by the Securities and Exchange Commission are true — a duty not to trade while in possession of the information. But that would not have prevented Weiland from suffering his losses.
Once again it appears all we have here is a case of an alleged crime with no victim.
—By CNBC's John Carney; Follow him on Twitter @Carney