(Reuters)
Steven Cohen, the billionaire art collector and founder of hedge fund giant SAC Capital, was implicated yesterday for the first time in an insider-trading scheme.
Manhattan US Attorney Preet Bharara said a former portfolio manager for an SAC-owned hedge fund used an illegal tip on a clinical trial of an Alzheimer’s disease drug to net $276 million for the fund.
Bharara said the profit was the most any hedge fund ever netted from a single illegal tip.
Cohen, 56, one of the most high-profile hedge fund titans in the world, was not charged with any wrongdoing — or even named in Bharara’s criminal complaint — in the charges filed against Mathew Martoma, who worked for an SAC affiliate for four years, until 2010.
Cohen, long rumored to be a target of Bharara’s wide-ranging criminal probe into insider-trading by hedge funds, was referenced multiple times — as “Hedge Fund Owner” — in the 21-page complaint because he participated in the trade.
The Securities and Exchange Commission filed civil charges at the same time surrounding the same alleged acts.
Martoma was arrested by FBI agents without incident yesterday at his posh, $2 million Boca Raton, Fla., estate.
Bharara, at a midday press conference at his downtown office, declined to comment on whether Cohen might be charged.
“Mr. Cohen and SAC are confident that they have acted appropriately and will continue to cooperate with the government’s inquiry,” said SAC spokesman Jonathan Gasthalter.
Martoma, 38, stands accused of helping $14 billion SAC and its CR Intrinsic unit make profits and avoid losses of $276 million on Elan Corp., based in Ireland, and Wyeth, of Madison, NJ, between 2006 and 2008.
After an appearance before a judge in West Palm Beach, Martoma was released on $5 million bail. He is scheduled to appear in Manhattan federal court Monday.
Martoma faces up to 45 years in prison.
Charles Stillman, a lawyer for Martoma, said he is “confident” his client will be fully exonerated.
Also named in the SEC suit was Dr. Sidney Gilman, 80, a professor at the University of Michigan Medical School, who was overseeing clinical trials of a promising Alzheimer’s drug being developed by Elan and Wyeth, and was allegedly passing tips to Martoma.
Gilman was not charged in the criminal complaint — having agreed with Bharara to testify against Martoma.
Gilman and Martoma met through an expert-networking firm. Gilman pocketed $108,000 from his chats with Martoma and others at SAC, prosecutors said.
By June 2008, SAC owned $700 million worth of Elan and Wyeth stock. On July 17, Gilman told Martoma that he was going to give a negative presentation on the clinical trials on July 29.
Three days later, on July 20, Martoma sent Cohen an e-mail saying “it’s important” that they speak, which they did for about 20 minutes, prosecutors said.
Cohen then directed the hedge fund to sell Elan and Wyeth, prosecutors said. The hedge fund also shorted Elan and Wyeth by approximately 7.75 million shares. The shares made up over 20 percent of the US trading volume in Elan over that time period, the feds allege.