Federal prosecutors in Manhattan allege these events took place in a criminal complaint filed against Martoma that was unsealed on Tuesday that also claims Martoma had obtained the confidential drug trial results early. The Wall Street Journal reported on Tuesday that billionaire hedge fund manager Steven A. Cohen is the hedge fund owner described in the criminal complaint.
Steve Cohen has been one of the investment world’s most successful traders, banging out huge returns year after year. He has built a massive $14 billion hedge fund firm, SAC Capital, and a net worth of $8.8 billion. But four people formerly associated with SAC have been criminally accused of insider trading. Cohen has neither been charged nor accused of any wrongdoing. His name does not appear in the complaint filed against Martoma. “Mr. Cohen and SAC are confident that they have acted appropriately and will continue to cooperate with the government’s inquiry,” an SAC Capital spokesman said in a statement.
According to the criminal complaint filed in Manhattan’s federal court, Martoma had originally recommended the Elan and Wyeth investments after obtaining confidential information that implied the Alzheimer’s drug could be effective. The information had come to Martoma from an Alzheimer’s expert working as a consultant to Elan, Sidney Gilman, who Martoma had met through an expert network service. Martoma bought Elan and Wyeth for his own portfolio but he also suggested to the hedge fund owner that an ongoing drug trial would be bullish for the stock. The hedge fund owner backed Martoma’s suggestion that the hedge fund owner-controlled portfolio buy Elan and Wyeth securities, even though others at the hedge fund opposed the idea because of the uncertainty of the drug trial. The hedge fund owner wrote that Martoma anticipated positive news and was “closest” to it, according to the criminal complaint.
After Martoma received confidential bad news about the drug trial in July 2008, the hedge fund owner and Martoma got the senior trader at the hedge fund to sell Elan and Wyeth stock, the complaint says. The hedge fund owner sent a text message to Martoma on a Tuesday about the selling of Elan stock saying “we are done on 2.3 [million] today” for a “total 3.8[million] in two days.” On the last Sunday of July 2008 the trader handling the selling emailed to the hedge fund owner the results of the week’s trading of 10.5 million Elan shares. The following Monday the hedge fund shorted 4.5 million Elan shares, betting the stock would decline in value, the complaint alleges. The hedge fund owner’s portfolio also sold its entire position in Wyeth.
When the drug trial data was finally announced at the end of July 2008, Elan’s stock tumbled by 42% in one day. Martoma was paid a $9.4 million bonus in January 2009, the criminal complaint says. One year later Martoma was fired from the hedge fund after one employee emailed that Martoma appeared to be a “one-trick pony with Elan.”
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