The SEC has hauled a group of biopharma executives into court, including Celgene's director of financing, charging them with running a sophisticated insider trading ring involving several old high school chums. And soon after that case came down, a former portfolio manager at SAC Capital was arrested for allegedly snagging a whopping $276 million in illicit gains after getting an insider tip from a leading Alzheimer's specialist about the 2008 failure of bapineuzumab, which had been a hot prospect for Alzheimer's.
In SEC documents, John Lazorchak, the director of financial reporting at Celgene ($CELG), was named one of the ringleaders, along with Mark Cupo, the director of accounting and reporting at Sanofi ($SNY) and Stryker's ($SYK) Mark Foldy, who worked in marketing. They picked up insider tips on acquisitions and regulatory applications, feeding the information to others who would buy and sell the stock. And in an attempt to cover their tracks, the traders kept up a regular series of trades in the three companies to hide the quick hits.
It all got started, says the SEC, when Lazorchak and Cupo, who had worked together at Sanofi, were chatting about Celgene's upcoming deal to buy Pharmion in late 2007. A friend they added to the circle put them in touch with a trader, who snapped up shares ahead of the $2.9 billion acquisition, which paid a 46% premium.
The SEC says the men eventually split up $1.7 million in illicit profits generated from 11 tips. Lawrence Grum, a friend of a high school friend, told Cupo they would probably never be caught, with the SEC too short staffed to track down all the insider trading going on. "At the end of the day," Grum allegedly told Cupo, "the SEC's got to pick their battle because they have a limited number of people and a huge number of investors to go after."
The FBI, meanwhile, arrested Mathew Martoma in Boca Raton for what it believes to be "the most lucrative insider trading scheme ever charged, resulting in benefits to the hedge fund of more than a quarter of a billion dollars."
Martoma allegedly found out from Sidney Gilman, a leading Alzheimer's investigator at the University of Michigan, that bapineuzumab--then owned by Wyeth and Elan--had failed a key study. Not only did the hedge fund sell all of its shares in the two companies, they shorted the developers as well. And they made a killing when the share price for both cratered on the news. Gilman, who reportedly was connected to Martoma through an expert networking firm that paid him $100,000, is now cooperating with the feds.
Over the past couple of years the SEC has found that the biopharma industry has been rife with insider trading. There have been cases involving Abbott ($ABT), Bristol-Myers ($BMY), Sanofi, Array BioPharma ($ARRY) and others. And most revolve around M&A deals, which were certain to trigger sharp spikes in the shares of the companies which were being bought out.
- here's the press release from the SEC
- see the report from the Financial Times on the bapineuzumab case
- read the New York Times story on Martoma and Gilman