The doctor met Martoma on Oct. 16, 2006, in New York, according to the FBI. Gilman began giving Martoma secret data on the clinical trial "starting in at least 2007," according to the SEC. He would call Martoma after safety-monitoring committee meetings to share "what he had just learned," the agency said.
The doctor gave Martoma charts provided by Elan to committee members of "serious adverse events" affecting patients in the drug trial, according to the FBI.
In the spring of 2008, the doctor told Martoma that bapi was "reasonably safe for a drug of its kind," according to the FBI. A news release by Wyeth and Elan on June 17, 2008, announced a high-level summary of the drug trial, saying detailed results would be released on July 29.
Amassed Holdings
By June 30, the hedge fund amassed holdings of $328 million in Elan equity securities and $373 million in Wyeth securities, according to the FBI. That began to change after Elan flew the doctor to San Francisco on July 15, 2008, to learn the detailed results of the trial, according to the FBI.
"The efficacy data was negative, particularly in comparison with market expectations following the June 17 press release," according to the FBI complaint. On July 17, Elan gave Gilman an encrypted PowerPoint presentation that summarized the results and that was marked "Confidential, Do Not Distribute."
Gilman and Martoma then spoke for an hour and 45 minutes before the doctor sent his friend the PowerPoint with a password needed to open it, according to the SEC.
Martoma "realized that the massive stake had become a colossal liability, and in a matter of just days, he caused the hedge fund not only to dump its shares but also to short the two drug stocks in advance of the negative drug trial becoming public," Bharara said. "Overnight, Martoma went from bull to bear as he tried to dig his hedge fund out of a massive hole."
'Winning Trades'
In January 2009, Martoma got a $9.38 million bonus, "which in large part was attributable to the results of the hedge fund's trading in Elan and Wyeth," the FBI said. The SEC said Martoma was "unable to generate such winning trades or outsized returns in 2009 and 2010, and did not receive a bonus in either of those years."
On May 5, 2010, according to the FBI, a hedge fund employee suggested in an e-mail that Martoma be terminated, calling him a "one trick pony with Elan." He was subsequently fired.
The criminal case is U.S. v. Martoma, 12-MAG-2985; and the civil case is SEC v. CR Intrinsic Investors LLC, 12-8466, U.S. District Court, Southern District of New York (Manhattan).