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Meet Sid Gilman: The Doctor Involved in a $276 Million Insider Trading Case

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A complaint against SAC Capital firm points to a vulnerable medical system, expert networks, and an unscrupulous fund manager. Here's the wrong way to make money off a failed drug trial.

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MINYANVILLE ORIGINAL Dr. Sid Gilman is a distinguished expert in neurology. Practicing and researching medicine for six decades, he's the former chair of the University of Michigan neurology department and has published almost 400 scientific papers. He's also a cooperating government witness after being charged in what the feds say is the biggest insider trading case in US history.

Gilman provided hedge fund manager Mathew Martoma insider information that helped a division of SAC Capital net $276 million in ill-gotten gains, according to a Securities and Exchange Commission lawsuit. As head of the safety monitoring committee overseeing a 2008 human trial of an experimental Alzheimer's drug bapineuzumab, Gilman had access to confidential information that he ultimately gave to Martoma, the feds say. Martoma's firm CR Intrinsic was invested in two publicly traded companies developing the drug, Elan (NYSE:ELN) and Wyeth -- now part of Pfizer (NYSE:PFE). CR Intrinsic is owned by SAC Capital, the hedge fund founded by billionaire Steven A. Cohen.

Using Gilman's tip that the drug trial was going to yield negative results, Martoma allegedly was responsible for the firm selling hundreds of millions of dollars in Elan and Wyeth stock in 2008. CR Intrinsic also shorted the two stocks, according to the complaint. The repositioning allowed CR Intrinsic to reap about $82 million in profit and avoid losses of $194 million, the complaint says.

The case says a lot about the unscrupulous behavior of an investment firm, but it also points to the vulnerability of the years-long clinical trial process in drug development that entrusts expert doctors with highly sensitive market-moving information. Like individuals dealing with confidential information in public companies, the medical community is expected to keep a lid on the carefully controlled scientific findings of these human studies.

"It does cause pause for concern over integrity of the system," says drug and biotech industry consultant Michael Becker.

Gilman is cooperating with the SEC and the US Attorney for the Southern District of New York. He's agreed to settle with the SEC and won't be prosecuted by the federal prosecutors but will pay $234,000. Gilman was paid more than $100,000 for his tips to Martoma, the feds say. Gilman was a medical consultant for a New York-based expert network firm, which arranged the contract with Martoma. Gilman was also a consultant for Elan, which paid him $79,000 in 2007 and 2008 for advice on the Alzheimer's drug, according to the feds.

Gilman couldn't be reached for comment.

The news was the second announcement in two days involving insider trading accusations involving drug companies. On Monday, the SEC announced a complaint against employees at Celgene (NASDAQ:CELG), Sanofi (NYSE:SNY) and medical device manufacturer Stryker (NYSE:SYK).

Twitter: @brettchase

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