Bad Billionaire Art Collector

Money and Art do not mix. Here is another case of a thief capturing beauty.

Jon

Mr. Cohen is one of the best-known and most successful hedge-fund managers, a billionaire art collector and a cherished client of Wall Street firms that earn millions of dollars annually from trades done by SAC Capital.

U.S. officials for the first time Tuesday implicated Steven A. Cohen, the founder of SAC Capital Advisors LP, in an alleged insider-trading scheme they said was the most lucrative ever to be charged.

In the criminal complaint unsealed Tuesday, federal prosecutors alleged that Mathew Martoma, a portfolio manager at SAC Capital affiliate CR Intrinsic Investors, received confidential information over an 18-month period from a neurology professor about a trial for an Alzheimer’s drug being jointly developed by Elan DRX.DB -1.33%Corp. and Wyeth, which is now part of Pfizer Inc. PFE -0.10%He allegedly purchased shares in the pharmaceutical companies and later sold their shares short when he learned negative news ahead of an announcement about the drug trial in 2008.

Steven A. Cohen, the founder of SAC Capital Advisors, was implicated for the first time by U.S. officials in an alleged insider-trading scheme.
.Mr. Cohen wasn’t charged or mentioned by name. He is referred to as “Portfolio Manager A” in an alleged $276 million insider-trading scheme in a civil complaint filed by the Securities and Exchange Commission, according to people familiar with the matter. Both civil and criminal complaints also refer to him as the “owner” of two hedge-fund affiliates involved in the alleged scheme, and depict him as integrally involved in the allegedly illicit transactions.

Mr. Cohen is one of the best-known and most successful hedge-fund managers, a billionaire art collector and a cherished client of Wall Street firms that earn millions of dollars annually from trades done by SAC Capital. Authorities have investigated him for insider trading without success for years, people familiar with the matter have said. An SAC spokesman didn’t immediately comment, and Mr. Cohen didn’t immediately respond to an interview request.

.According to the SEC complaint, Portfolio Manager A authorized many of the trades based on Mr. Martoma’s alleged inside information, and rejected the advice of other analysts at his firm that conflicted with Mr. Martoma’s positions. In particular, on July 20, 2008, after Mr. Martoma had learned negative information relating to two pharmaceutical stocks in which SAC and its affiliate had big positions, Mr. Martoma said it was “important” that he speak to Portfolio Manager A, and indicated he was no longer “comfortable” with their positions, according to the civil complaint.

The next day, Portfolio Manager A’s head trader began selling hundreds of millions of dollars of shares in the two companies, and the hedge funds later began executing negative bets against those two companies’ stocks, reaping big profits and saving large losses.

The neurology professor, Sidney Gilman, was chairman of the safety committee overseeing the drug trial and moonlighted as a paid consultant for a New York expert-network firm, which links industry experts with investors for a fee, according to a civil complaint filed by the SEC.

Dr. Gilman, who has only been charged in the SEC complaint, was paid nearly $108,000 for meeting with persons from CR Intrinsic and an unnamed investment firm, including 42 meetings with Mr. Martoma, the SEC said.

Dr. Gilman’s attorney said that he is cooperating with both the SEC and federal prosecutors and has entered into a non-prosecution agreement.

In a statement, Mr. Martoma’s attorneys said: “Mathew Martoma was 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.”

Preet Bharara, the U.S. attorney in Manhattan, said: “The charges unsealed today describe cheating coming and going—specifically, insider trading first on the long side, and then on the short side, on a scale that has no historical precedent.”

Mr. Martoma, who left Intrinsic in 2010, is the fourth person formerly associated with SAC Capital, which manages $14 billion, to face criminal charges in a broad government crackdown on insider trading in corporate America. More than 70 people have been charged in the overall investigation.

Jon Horvath, a former analyst at SAC’s Sigma Capital Management, pleaded guilty to criminal charges in a separate insider-trading scheme and is cooperating with prosecutors. Donald Longueuil and Noah Freeman, both former SAC fund managers, previously pleaded guilty to insider-trading charges in another probe.

Mr. Martoma , 38 years old, has been charged with conspiracy to commit securities fraud and two counts of securities fraud. Each fraud count carries up to 20 years in prison.

The Federal Bureau of Investigation arrested Mr. Martoma at his home in Boca Raton, Fla., at 6:30 a.m. Eastern time Tuesday, a New York FBI spokesman said. Mr. Martoma is expected to appear in federal court in Boca Raton later Tuesday.

Prosecutors and the SEC are expected to discuss the charges in more detail at a news conference at 12:30 p.m. Eastern time.

Dr. Gilman, a former professor at the University of Michigan Medical School, began meeting with Mr. Martoma in 2006, earning about $1,000 a hour for his consultations with Mr. Martoma and others, according to the SEC.

A lengthy 2011 résumé posted online for Dr. Gilman said he has consulted for expert-network firm Gerson Lehrman Group as a “scientific advisory member” since 2002. A spokesman for Gerson didn’t immediately comment.

Based on confidential information he received from Dr. Gilman, Mr. Martoma allegedly caused hedge funds managed by CR Instrinsic as well as funds managed by an affiliated investment adviser to build a long position worth more than $700 million in Elan and Wyeth, the SEC said.

In mid-July 2008, Dr. Gilman, 80, provided Mr. Martoma actual, detailed results of clinical trial ahead of a July 29, 2008, public announcement, the SEC said. The news was negative, so Mr. Martoma caused CR Intrinsic and the affiliated hedge-fund to take substantial short positions, selling more than $960 million in just over a week, the SEC said.

As a result, Mr. Martoma’s funds allegedly made profits and avoided losses of $276 million, prosecutors said in court papers.

Mr. Martoma was paid a bonus of $9.38 million in January 2009, a large part of which was attributable to his successful trading in Elan and Wyeth, according to the criminal complaint. He received no bonus for his work in 2009 when his portfolio lost money, prosecutors said.