NEW YORK – A former hedge fund portfolio manager was arrested Tuesday in what prosecutors are calling perhaps the most lucrative insider trading scheme of all time – an arrangement to obtain confidential, advance results of tests on an experimental Alzheimers drug that helped investment firms make more than $276 million.
Mathew Martoma, 38, was charged in U.S. District Court in Manhattan with using the information to advise a hedge fund owner to buy shares in the companies developing the drug, then later to dump those investments and place financial bets against the companies when the tests returned disappointing results.
Martomas trades helped reap a hefty profit from 2006 through July 2008, while he worked for CR Intrinsic Investors LLC of Stamford, Conn. The company is an affiliate of SAC Capital Advisors, a firm owned by Steven A. Cohen, one of the nations wealthiest hedge fund managers.
The charges unsealed today describe cheating coming and going, U.S. Attorney Preet Bharara said at a news conference. The scheme unfolded on a scale that has no historical precedent.
The government has been scrutinizing SAC since at least November 2010, when the FBI subpoenaed SAC and other influential hedge funds.
Martoma is the fourth person associated with SAC Capital to be arrested on insider trading charges in the last four years. A request for comment from SAC was not immediately returned.
The FBI said the scheme developed after Martoma met a doctor in Manhattan involved in an Alzheimers drug trial in October 2006. According to a criminal complaint, he later obtained confidential information related to the final results of a drug trial.
Martomas attorney, Charles Stillman, called his client an exceptional portfolio manager who succeeded through hard work and the dogged pursuit of information in the public domain. What happened today is only the beginning of a process that we are confident will lead to Mr. Martomas full exoneration.
Martoma was arrested at his home in Boca Raton, Fla., and made an initial appearance in federal court in West Palm Beach, Fla., where he was released on $5 million bail on charges of conspiracy to commit securities fraud and securities fraud.
He was scheduled to return to court Monday in Manhattan.