Insider trading scandals highlight role of Wall Street's biotech experts

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It's not surprising that the biotech industry, where sudden changes in fortune can add or subtract huge amounts of investment cash in a matter of seconds, has become the subject of a long string of insider trading scandals. Today Bloomberg provides a detailed profile of Joseph F. "Chip" Skowron III, who used his insider connections with a drug investigator for Human Genome Sciences to escape the heavy losses that would befall other investors after the failure of a key hepatitis C study.

According to the feds, Yves Benhamou was one of the clinical investigators working on Albuferon, HGS's experimental hepatitis C treatment. But like a large number of investigators, he was also one of the experts who had a sideline advising healthcare investors on the R&D front. And in exchange for some thousands of dollars in payments from Skowron, he told the doctor-come-investor about the sudden sickness of two patients in the study, one of whom would die. When the news hit later, HGS shares plunged 44%. The insider tip saved Skowron's firm $30 million.

Today Skowron is in jail serving a 5-year sentence after Benhamou reached a deal with the feds to testify against him. Skowron also agreed to pay a $6 million penalty. Benhamou was sentenced to a few weeks in jail; time already served. Then he went home to France. 

Federal investigators have clearly tapped into the close--and occasionally illegal--ties that bind big investors with some top clinical trial experts in the industry. Dr. Sidney Gilman at the University of Michigan made a handsome side business out of advising Wall Street, earning $1,000 an hour. And just days ago the SEC says that Mathew Martoma used that relationship to get insider knowledge on a key Alzheimer's study back in 2008. That tip, the feds say, was worth $276 million for SAC Capital Advisors, the single biggest insider trading case that the SEC has brought.

The big question now is who will be the next to fall as these insider trading cases multiply.

- here's the article from Bloomberg

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Commentary: Biotech is a ripe field for insider-trading scandals