Law

Fund Manager Charged in $250 Million Insider Scheme

Reuters With CNBC.com
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A former hedge fund manager who worked for a wholly-owned division of Steven A. Cohen's SAC Capital was arrested on Tuesday in what U.S. prosecutors are calling "the most lucrative insider-trading scheme ever."

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Mathew Martoma, who worked for CR Intrinsic Investors in Stamford, a unit of SAC Capital, has been accused of making more than $276 million in illicit profits based on tips about Elan and Wyeth LLC, which was bought by Pfizer in late 2009.

Authorities contend Martoma and SAC Capital's CR Intrinsic made more than $276 million in illegal profits or avoided losses in July 2008 by trading ahead of a negative public announcement involving the clinical trial results for an Alzheimer's drug being jointly developed by Elan and Wyeth.

"As alleged, by cultivating and corrupting a doctor with access to secret drug data, Mathew Martoma and his hedge fund benefited from what might be the most lucrative inside tip of all time," Manhattan U.S. Attorney Preet Bharara said in a statement. "As Martoma allegedly got sneak peeks at drug data, he first recommended that the hedge fund build up a massive position in Elan and Wyeth stock, and then caused the fund to shed those shares after getting a secret look at the unexpectedly bad results of a clinical drug trial."

The charges against Martoma, who left the SAC Capital division in 2010, stem from the federal government's long-running investigation into improper trading in the $2 trillion hedge fund industry.

To date, the investigation has led to more than 50 convictions with the most notable ones being former Galleon founder Raj Rajaratnam and former Goldman Sachs Group director Rajat Gupta.

Slowly, U.S. authorities have been filing charges and winning convictions against lower-level traders and analysts who once worked for Cohen, one of the hedge fund industry's most successful and best-known traders.