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Business

U.S. Alleges Insider Drug Company Trading

Government accuses traders of using nonpublic information to make huge profits from pharmaceutical company stocks

by Marc S. Reisch
November 26, 2012 | APPEARED IN VOLUME 90, ISSUE 48

Federal authorities last week filed charges against several investors and a fund manager in two insider-trading schemes involving big pharma firm stocks.

The Securities & Exchange Commission and the U.S. Department of Justice filed the complaints. One case is against former SAC Capital Advisors fund manager Mathew Martoma. He is accused of making $276 million in illegal profits and avoided losses in July 2008 by trading in securities of Elan and Wyeth, now part of Pfizer. Prosecutors say the case is “the most lucrative insider-trading scheme ever charged.”

Prosecutors allege that Sidney Gilman, a neurologist, tipped off Martoma about poor results from a Phase II clinical trial for the two companies’ Alzheimer’s disease drug candidate, bapineuzumab. News of the results caused double-digit declines in the shares of both firms, but not before Martoma turned the information to his advantage.

Gilman, who chaired the safety monitoring committee overseeing the clinical trial, has agreed to pay more than $234,000 in fines. If convicted, Martoma faces up to 45 years in prison and millions of dollars in fines.

In the second case, federal attorneys allege that Mark S. Cupo and John Lazorchak, who held senior accounting positions at Sanofi and Celgene, respectively, funneled inside information to at least four other people, generating $1.4 million in illegal profits.

For five years, beginning in 2007, the six allegedly traded tips on quarterly earnings, drug approvals, and mergers, including Celgene’s 2008 acquisition of Pharmion.

If they are found guilty, the defendants face jail time and thousands of dollars in fines.

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