Bid to dismiss insider deal charge

A former portfolio manager has urged a US federal judge to dismiss two insider trading charges tied to his firm’s sales of Elan’s US depositary receipts.

Matthew Martoma, who worked for SAC Capital Advisors, is charged with the biggest insider trading scheme in US history.

He yesterday cited a 2010 US Supreme Court ruling, called Morrison v National Australia Bank, that said US laws don’t protect foreign investors who buy stocks on overseas exchanges.

He was charged by the US in November, accused of helping the hedge fund founded by Steven Cohen make $276m (€216m) using illegal tips about a drug to treat Alzheimer’s disease.

The US alleged that after getting a tip from a neurologist who was head of the safety monitoring committee for the drug trial, Mr Martoma traded on Elan ADRs and shares of Wyeth.

Mr Martoma has denied wrongdoing and is scheduled to go on trial in November.

The US Securities and Exchange Commission alleges that Mr Martoma’s source was Sid Gilman, a University of Michigan neurologist who is co-operating with the US.

In July 2008, the doctor passed Mr Martoma secret data showing that drug, known as bapi, failed to halt progression of Alzheimer’s in patients in a clinical test.

Mr Martoma subsequently had a phone call with Mr Cohen. The hedge fund owner, at Mr Martoma’s recommendation, sold off almost all of the fund’s $700m position in Elan and Wyeth, then sold the stock short, prosecutors claimed.

When the clinical trial results became public, shares in both companies plunged, allowing the hedge fund to make $276m in profit and losses avoided, according to the government.

Mr Martoma received a $9.3m bonus as a result, according to the indictment.

SAC Capital agreed in March to pay almost $602m to settle SEC claims tied to the trades without admitting or denying wrongdoing.

Bloomberg