Hedge Fund Manager Charged in Most Profitable Insider Trading Scheme Ever

Federal prosecutors recently charged a manager who was affiliated with of one of the world’s largest and most well known hedge funds in what they described as the most lucrative insider trading scheme ever. The manager, Mathew Martoma, worked for a company affiliated with SAC Capital Advisors L.P.

According to prosecutors, Marthoma obtained secret data from a professor who oversaw a clinical trial for an Alzheimer’s drug. Marthoma allegedly worked with the hedge fund manager and owner of SAC Capital Advisors and to buy shares for the fund in two drug companies that were involved in the clinical trial. Using the nonpublic information gained from the professor, the two allegedly bet that the companies’ shares would fall.

As a result of the inside information, the hedge fund reaped $276 million in profits and losses avoided. This is by far the largest profit ever reported in an insider trading case. According to prosecutors, most of the profits were paid to Steven Cohen, the owner and manager of SAC Capital Advisors. However, Marthoma received a bonus of $9.3 million. He was charged with conspiracy to commit securities fraud and two counts of securities fraud-each count carries up to 20 years in prison.

Insider trading

Insider trading is a term that is commonly heard among investors and laypersons alike. Insider trading can refer to both legal (e.g. when corporate officers and directors buy or sell their own company’s stock and report it to the SEC) and illegal conduct.

Illegal insider trading occurs when a security is bought or sold in breach of a relationship of trust and confidence or while having important information about the security that is not available to the public. Under SEC rules, if the person who is buying or selling the security is aware of the important nonpublic nature of the information during the transaction, the trade is legally presumed to have been made on the basis of the important nonpublic information (with a few exceptions).

Insider trading violations also can involve persons who disclose such material nonpublic information to other persons. Both the person who “tipped” the information to the other party and the person who received the information (and then bought or sold a security) can be held criminally liable.

A securities attorney can help

Like other types of securities fraud, insider trading undermines investor confidence in the integrity and fairness of the securities markets. Because of this, the SEC has made detecting and prosecuting insider trading violations one of its top priorities. If you are aware of or have been a victim of securities fraud, contact an attorney experienced in securities fraud and stockbroker misconduct. An attorney can assist you in reporting the incident to authorities and recovering your investment losses.