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OT: Massive hedge fund insider trading scandal - Palm - 11-21-2012
We repeatedly hear that these hedge funds like SAC Capital and others don't do things that can affect pps of a company. Nope Mr Market always has it right. Maybe not always. $276 million scandal on just one company shows the extent these hedge funds will go. NY FBI office is in 5-year crackdown on this stuff and says there's no end in sight.
"Ex-hedge fund trader charged in $276M insider plot
Posted: Today at 6:45 pm EST
0
NEW YORK (AP) -- 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 Alzheimer's 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.
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 Steven A. Cohen, one of the nation's 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 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. What happened today is only the beginning of a process that we are confident will lead to Mr. Martoma's 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.
The Securities and Exchange Commission filed civil papers in the case against CR Intrinsic Investors, Mathew Martoma and Dr. Sidney Gilman. The civil complaint said the illegal money was earned in July 2008, when various hedge funds traded ahead of a negative public announcement involving the clinical trial results of an Alzheimer drug being jointly developed by Elan Corp. and Wyeth.
The SEC complaint said that Martoma carried out the scheme with Gilman, a professor of neurology at the University of Michigan Medical School who served as chairman of a safety committee overseeing the clinical trial. Gilman was selected by Elan and Wyeth to present the final clinical trial results at a July 29, 2008, medical conference.
Messages left with the University of Michigan Medical School were not immediately returned.
Gilman's lawyer, Marc Mukasey, said his client is cooperating with the SEC and the U.S. Attorney's Office, and has entered into a non-prosecution agreement with federal prosecutors.
Bharara said Martoma gained from "cultivating and corrupting" Gilman, eventually receiving $9 million in bonus pay for the year when the trades were made.
The prosecutor said Martoma arranged beginning in the summer of 2006 through an expert networking firm to meet with the doctor about 42 times, eventually convincing him to start talking about the drug trial.
The SEC said leaks by Martoma caused hedge fund portfolios managed by CR Intrinsic and by an affiliated investment adviser to liquidate more than $700 million in holdings in Elan and Wyeth.
The massive repositioning, the SEC said, allowed CR Intrinsic and various hedge funds to collective reap illicit profits and avoid losses of more than $276 million.
"By cultivating and corrupting a doctor with access to secret drug data, Mathew Martoma and his hedge fund benefited from what might be the most lucrative inside tip of all time," Bharara said.
The prosecutor said the doctor sent him a draft of the 24-page presentation he planned to make at a conference announcing the results.
"And that is when Martoma had to do a spectacular about-face because he understood that -- with these negative results looming -- the hedge fund's massive $700 million stake had become a terrible bet," Bharara said. "And so, just like that, overnight, Martoma went from bull to bear as he tried to dig his hedge fund out of a massive hole."
The news caused Elan's stock price to plunge by more than 40 percent while the price of Wyeth fell about 12 percent.
A year later, a hedge fund employee recommended that Martoma be terminated and he was let go in 2010, Bharara said.
April Brooks, head of the New York FBI office, said the arrest was a continuation of the FBI's five-year campaign against insider trading and that no end was in sight.
"What we see again is an unholy alliance between an insider willing to divulge valuable non-public information, and a money manager to whom that information is as good as gold," she said.
(Copyright 2012 by The Associated Press. All Rights Reserved.)
RE: OT: Massive hedge fund insider trading scandal - ebster123 - 11-21-2012
Well, I can tell you with certainty from a very good source that the SEC has begun an investigation into stock manipulation of IOC. Good luck longs!!!!
RE: OT: Massive hedge fund insider trading scandal - Palm - 11-21-2012
Do tell Ebster. Here's the actual case filed in NY today on the SAC fraud. SAC and Cohen are not specifically named in the complaint but several reports state they are the target. "The Hedge Fund Owner" is by most counts expected to be Cohen.
http://www.justice.gov/usao/nys/pressreleases/November12/MartomaStatementPR/Martoma,%20Mathew%20Complaint.pdf
RE: OT: Massive hedge fund insider trading scandal - TxPm - 11-21-2012
Let's be real does anyone honestly think Stevie Cohen is EVER going to be indicted much less charged? No way. Yet how much of that $275Mil profit you think went into Stevie's wallet? I'd be willing to guess at least 10%....$27.5 Mil not to shabby..
RE: OT: Massive hedge fund insider trading scandal - TxPm - 11-21-2012
Also Ebster while I hope that's true even if it is it will take the SEC 4-6 years to put a case together...I pray we don't have to deal with this manipulation for that long
RE: OT: Massive hedge fund insider trading scandal - ebster123 - 11-21-2012
I can tell you that pieces of data that I heard were mentioned included documents from SA (ie. Adam Gefvert among others), RDS and their 1,000,000,000 bribe to Duma, a couple of prominent hedge funds known to be shorting the stock and a few other things.
RE: OT: Massive hedge fund insider trading scandal - Palm - 11-21-2012
More perspective; he will squirm. Maybe he gets convicted maybe he doesn't, but it sounds like they have pretty clean lines to "The Hedge Fund Owner"
9:11PM EST November 20. 2012 -
NEW YORK — The government's five-year war to root out illegal insider trading on Wall Street displayed fresh firepower Tuesday when prosecutors charged a former money manager at a unit affiliated with hedge-fund titan Steven Cohen's SAC Capital Advisors in what they're calling the "most lucrative insider-trading scheme" ever.
This case is stunning because of the sheer size of the ill-gotten gains, which federal prosecutors say are nearly a quarter of a billion dollars. Also, the "evidence trail" appears to be edging to the billionaire founder of SAC, says Thomas George, partner at law firm Dorsey Whitney and former senior counsel at the Securities and Exchange Commission's division of enforcement. "This is a very high-profile case due to the size of the ill-gotten gains and where the case might go," he says.
Cohen and SAC Capital were not charged or even mentioned n the 21-page complaint in the case of USA v. Mathew Martoma. The 38-year-old former portfolio manager at SAC-affiliate CR Intrinsic Investors was arrested Tuesday. He was the only one charged with helping the hedge fund make $276 million in illegal profits and avoided losses on shares of drugmakers Elan Pharmaceuticals and Wyeth in July 2008, after getting illegal inside tips related to clinical trial results of an Alzheimer's drug the two companies were developing — and trading on the information before it was made public, which is illegal.
SAC did not return a call from USA TODAY or provide a statement.
Martoma got "sneak peeks at drug data" before other investors via phone calls, e-mails and PowerPoint presentations from an 80-year-old neurology professor at the University of Michigan Medical School who was overseeing the drug's clinical trial, as well as providing consulting services to the hedge fund via a so-called expert networking firm, where he "moonlighted" for $1,000 an hour.
In announcing the criminal charges, Preet Bharara, the U.S. Attorney for the Southern District of New York, said Martoma and his hedge fund benefited from "what might be the most lucrative inside tip of all time." Also Tuesday, the SEC filed a parallel civil complaint, charging Martoma, CR Intrinsic and the neurologist, Dr. Sidney Gilman, who is cooperating with prosecutors.
The complaint references Matoma speaking to the "hedge fund owner where he was employed" about his "recommendation" to sell shares of Elan and Wyeth after receiving the illegal inside information on July 17, 2008, that the Phase II trial of the drug did not go as well as Wall Street was expecting. The complaint alleges that on July 21, 2008, both Martoma and the "hedge fund owner" instructed a trader at the firm to sell its entire positions of Elan and Wyeth before the public dissemination of the trial results, which were scheduled for release on July 29, 2008.
The hedge fund ended up selling 10.5 million shares of Elan and 7 million shares of Wyeth. The hedge firm also placed a big trade that would allow it to profit if the stock fell in value once the negative drug trial findings went public. And that's what happened. Shares of Elan plunged 42% and Wyeth fell 12% in the first trading day after the drug's poor trial results were made public.
The evidence trail pointing toward Cohen includes the mention of Martoma speaking to the "hedge fund owner" about the illegal stock trades.
It also includes the fact that CR Intrinsic Investors is an affiliate of SAC and was named as a defendant in the SEC case. Intrinsic also shares the same address with SAC, adds Jack Sylvia, co-chair of the securities litigation practice at Mintz Levin.
While Sylvia notes that "there is nothing in the complaint that states that the person Martoma is alleged to have provided the information to was aware the information was non-public or aware of the source of the information, ... the fact that Steven Cohen owns SAC (leads to the) inference that Cohen is the hedge fund owner referenced" in the complaint.
Adds Jacob Frenkel, head of the securities enforcement practice at Shulman Rogers, "The wording of the charges suggests strongly that there still are other targets inside the hedge funds and expert networks, whom the government has not charged yet."
FBI special agent-in-charge April Brooks said Tuesday's moves are the latest offensive in the FBI's "five-year campaign to root out insider trading at hedge funds and expert networking firms."
Since the crackdown on insider trading began, there have been more than 70 arrests, says Brooks. The biggest hedge fund titan to be ensnared in the multiyear probe was Raj Rajaratnam, the head of hedge fund group Galleon, who was found guilty in October 2011 and was sentenced to 11 years in prison."
http://www.usatoday.com/story/money/markets/2012/11/20/ny-feds-most-lucrative-insider-trading/1716799/
RE: OT: Massive hedge fund insider trading scandal - admin - 11-21-2012
This isn't at all surprising, although the surprising thing is authorities actually doing something about it. If it ends with these people paying a fine, even if it's hundreds of millions of dollars, it means litle to nothing to them. Going to jail is rather different though.
Considering the incredibly amount and complexity of information (and knowledge required to interpret it) that is behind a single company's stock price, opportunities for manipulation are rife.
RE: OT: Massive hedge fund insider trading scandal - trans - 11-21-2012
'admin' pid='13059' datel Wrote:This isn't at all surprising, although the surprising thing is authorities actually doing something about it. If it ends with these people paying a fine, even if it's hundreds of millions of dollars, it means litle to nothing to them. Going to jail is rather different though. Considering the incredibly amount and complexity of information (and knowledge required to interpret it) that is behind a single company's stock price, opportunities for manipulation are rife.
SAC and Steve Cohen are criminals......I've tracked him for a good while. And the govt, has been after him for a while. The street knowlegables know all about Steve's antics. He tried to corral controlling interest in Ameritrade and E-Trade, but the real reason was to have huge borrowing power for his shorting.. CR Intrengics and the Diamond are but just two of his accomplices. I'm surprised someone hasn't really come after him physically. but google the guy and SAc Capital and see for yourself. Our action in IOC is quite similar to the way they do business....fwiw, imo
RE: OT: Massive hedge fund insider trading scandal - Palm - 11-21-2012
'TxPm' pid='13052' dateline='<a href="tel:1353467 Wrote:Let's be real does anyone honestly think Stevie Cohen is EVER going to be indicted much less charged? No way. Yet how much of that $275Mil profit you think went into Stevie's wallet? I'd be willing to guess at least 10%....$27.5 Mil not to shabby..
The last article I posted contradicts what you say. I remember people saying Raj would not be convicted; but he got 11 years. As for being charged, again read that last article. Attorneys well versed in these cases are saying the language of "The Hedge Fund Owner" indicates to them that more charges are coming against several people most likely, and one of them is likely to be whomever the SAC Hedge Fund Manager is.
Doesn't matter how long it takes to indict these people; to just worry about pps today and how it affects you is the wrong outlook. If these guys can be nailed, nail them with a solid case.