NEW YORK – A former hedge fund portfolio manager was arrested Tuesday in what prosecutors called perhaps the most lucrative insider trading scheme of all time – an arrangement to obtain secret, advance results of tests on an experimental Alzheimer’s drug that helped his fund and others make more than $276 million.
The case also led authorities to investigate the activities of one of the nation’s wealthiest hedge fund managers, Steven A. Cohen.
The portfolio manager, Mathew Martoma, was accused in U.S. District Court in Manhattan with using the information to advise other investment professionals 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.
“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.”
Martoma’s trades helped reap a hefty profit from 2006 through July 2008, while he worked for CR Intrinsic Investors LLC of Stamford, Conn., an affiliate of SAC Capital Advisors, a firm owned by Cohen.
Cohen is not referred to by name in court papers but is frequently alluded to for his dealings with the defendant in the weeks leading up to an announcement about the drug trial.
The FBI said the scheme developed after Martoma met a doctor in Manhattan involved in an Alzheimer’s drug trial in October 2006. According to a criminal complaint, he later obtained confidential information related to the final results of a drug trial.
Martoma’s 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. ”
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.