SAC trader's conviction closes the book on biotech's biggest insider scandal

A federal jury convicted SAC Capital Advisors trader Mathew Martoma of insider trading, finding him guilty of seeking out confidential clinical trial information to get ahead of the market and bringing an end to biotech's latest Wall Street blowup.

According to the feds, Martoma cozied up to octogenarian clinical researcher Sidney Gilman, then employed by the University of Michigan Medical Center, spending two years and thousands of dollars to forge a friendship. In exchange, his new friend eventually clued him in on the fact that Elan ($ELN) and Wyeth's much-hyped Alzheimer's hopeful, bapineuzumab, was about to flunk out of clinical development, giving Martoma the chance to dump shares and help SAC reap $275 million in profits and averted losses before the rest of the market had a clue.

"Martoma bought the answer sheet before the exam," U.S. Attorney Preet Bharara told The New York Times.

Now the 39-year-old is likely headed to federal prison for between 7 and 10 years, according to the Times, making him the latest cautionary tale in the seemingly growing problem of insider trading in the biotech world. Over the past two years, similar stories have come to light involving craven investors and complicit employees of Human Genome Sciences, Celgene ($CELG), Sanofi ($SNY) and others, as the remarkably binary nature of drug trials brings out the greed in suits and lab coats alike.

Martoma is also the 8th SAC employee convicted in an insider scheme, and his case was the first to implicate the scandal-plagued firm's eponymous founder, Stephen A. Cohen. However, federal prosecutors never managed to stick charges to the 57-year-old hedge fund manager, and he didn't seem terribly worried: As the Times notes, at one point during Martoma's trial, Cohen spent an evening at Madison Square Garden watching the Knicks with New York art magnate Larry Gagosian.

Gilman, who was making $100,000 a year advising investors through Gerson Lehrman Group during the Martoma saga, has since lost his job at Michigan, but his willing testimony kept him from charges all his own.

- read the Times story

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