Hedge Fund Manager Named in “Most Lucrative Tip” Ever
Prosecutors have unsealed a criminal complaint in what is being called an insider trading scam that lacks historical precedent involving the “most lucrative inside tip of all time.” Ex-hedge fund manager Mathew Martoma allegedly made or avoided losses of $276M when trading securities in pharmaceutical companies Wyeth and Elan Corp. plc.
The insider information related to the potential ineffectiveness of an Alzheimer drug clinical that both companies were working on, which consultant Sidney Gilman allegedly provided to Martoma, is purportedly the reason that the former hedge fund manager liquidated his funds’ long position (about $700M) in the two companies and took short positions instead. Martoma, advisory firm CR Intrinsic Investors LLC, and an affiliated adviser allegedly avoided $194M in losses and $82M in profits when the drug trial results were made public and the companies’ stock dropped. The SEC has filed a parallel civil case against Martoma, CR Intrinsic Investors, and Gilman.
Ex-Real Estate Director & Tippee Friend in Merger Targets Must Face SEC Charges
Ex-Royal Philips real estate director Ralph J. Pirtle Ralph J. Pirtle and his friend Berco Realty President Morando Berrettini do, indeed, have to face Securities and Exchange Commission insider trading charges. The SEC had filed charges against them in 2008 because Pirtle allegedly provided Berrettini with insider information that came from the due diligence he was conducting for Royal Philips about possible merger targets. Berrettini then allegedly used the tips to trade in the stocks of three of the companies under consideration and he made “substantial profit” when two of them were acquired.
The defendants’ countered that in filing its case the SEC did not provide evidence that would cause a jury to find that Berrettini benefited from the insider information. However, Judge Robert M. Dow Jr. of the U.S. District Court for the Northern District of Illinois says that the SEC did adequately allege its claims elements and the insider trading charges will stand.
Criminal Liability of Secondary Tippees Gets Court Clarification Again
When is a secondary tippee criminally liable for insider trading? Holding the conclusion made earlier this year by Federal Judge Jed Rakoff, the U.S. District Court for the Southern District of New York said that it is when that tippee had a “general understanding” that the information received came from an insider who breached a confidentiality duty for personal benefit.
The court rulings involved jury instructions in the criminal case against hedge fund manager Doug Whitman, who was convicted on securities fraud and conspiracy charges related to tips he received from tippees that got their information from the employees of three public companies. The court found that in addition to having this “general understanding,” a secondary tippee such as Whitman does not have to know the specifics of the breach or the benefits that the insider obtained to be held criminally liable. He/she, however, must have had a “specific intent” to defraud the company that the information is related to of that data’s confidentiality.
United States v. Martoma, Justice.gov (PDF)
More Blog Posts:
Texas Securities Case: Mark Cuban Asks District Court To Reconsider Compelling the SEC to Produce Documents Related to Insider Trading Allegations Over Mamma.com Stock Offering, Stockbroker Fraud Blog, June 19, 2012
Insider Trading Roundup: SEC Settlement Reached Over Alleged Tips In Insurers’ Merger, Court Won’t Throw Out Criminal Charges Related to Info From AA Member, & Asset Freeze Approved Against Broker In Burger King Acquisition, Stockbroker Fraud Blog, September 28, 2012
Insider Trading: Former FrontPoint Partners Hedge Fund Manager Pleads Guilty to Criminal Charges, Institutional Investor Securities Blog, August 20, 2012
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