NOW Online at FULL-TEXT US v. Martoma INDICTMENT with Bill Singer Analysis

December 21, 2012

Now online: FULL-TEXT INDICTMENT of US v. Martoma (SDNY, 12-CRIM-973, December 21, 2012).

Three Counts

I. Conspiracy to Commit Securities Fraud: Wyeth
II. Securities Fraud: Elan
III. Securities Fraud: Wyeth

NOTE: An Indictment contains allegations and the defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

As set forth in the Indictment:

Portfolio Manager Mathew Martoma specialized in the health care sector for a division of a privately held group of affiliated hedge funds and associated fund advisers. The Fund's written policy forbid trading securities based upon material non-public information ("Inside Information") and pointedly admonished against inappropriate contacts with doctors conducting clinical trials.

During the relevant times in the events alleged in the Indictment, Elan and Wyeth were partners in a Food And Drug Administration ("FDA") Phase II Alzheimer's drug clinical trial for bapineuzumab.

  • Dublin, Ireland-based Elan Corporation plc's stock traded as American Depository Receipts ("ADRs") on the NYSE under the symbol ELN.
  • Delaware corporation, New Jersey-based Wyeth's stock traded on the NYSE under the symbol WYE.Portfolio Manager Mathew Martoma

Elan forbid members of its Safety Monitoring Committee ("SMC") from disclosure of "any and all data, safety, efficacy, or otherwise" about drug trials prior to the public dissemination of the data.  An individual identified in the Indictment as a Cooperating Witness is also:

  • An unindicted co-conspirator;
  • Professor of Neurolgy;
  • Paid consultant to Elan; and
  • Chair of Elan's SMC.

The Indictment asserts that a Manhattan, New York City-based Expert Networking Firm had arranged for paid consultations during the relevant times between financial industry clients and experts in various fields; and that the Fund paid the Firm substantial fees for acc ess to health care experts, of which the Cooperating Witness was one.  Consonant with the in-house policies of the pharmaceutical companies, the Firm admonished the clients and experts to refrain from discussing any clinical trials that the experts may be participating in to the extent of non-public. patient experiences or trial results. 

The Indictment alleges that from about 2006 through approximately July 29, 2008, as a result of 42 consultations with the Cooperating Witness (typically following SMC meetings),  Martoma, participated in an insider trading scheme involving drug trials at Elan and Wyeth, resulting in decisions to buy or sell the stock dependent upon the nature of the information. The stock transactions were allegedly for Martoma's own portfolio and purportedly included his recommendations to the founder and principal owner of the Fund.

After receiving information from the Cooperating Witness that the Alzheimer's drug trials were negative, Martoma allegedly caused the sale of the Fund's $700 million Elan and Wyeth positions prior to the public dissemination of the results.  Moreover, the Fund allegedly put on short positions and option trades to profit from the anticipated depreciation in the two drug companies' stock price.  In fact, the Indictment asserts that Elan fell about 42% and Wyeth about 12% on the disappointing results. The Indictment asserts that the Fund's profits and avoided losses yielded $276 million with Martoma realizing a $9.3 million bonus.

Also READ:Elvis Presley Had It Right When It Came To Insider Trading ("Street Sweeper", November 30, 2012).