Sid Gilman, a University of Michigan neurologist, was portrayed by U.S. authorities as a $1,000-an-hour consultant who leaked confidential drug trial data that helped hedge fund SAC Capital Advisors LP illegally avoid losses or make profit of $276 million.
Gilman, 80, was chairman of a safety-monitoring committee that oversaw a clinical trial by Wyeth LLC and Elan Corp. into whether the drug bapineuzumab, or bapi, was safe for patients with mild-to-moderate Alzheimer’s disease. Gilman also moonlighted for a New York-based expert network, providing advice at a fee to former SAC portfolio manager Mathew Martoma, according to the Securities and Exchange Commission and Justice Department.
Gilman treated Martoma, 38, as a “friend and pupil” as he leaked him secret data for 18 months, authorities said. Gilman told Martoma on July 17, 2008, that bapi wasn’t helping patients as expected, according to the SEC. Prosecutors yesterday charged Martoma with insider trading and the SEC sued him, saying Gilman’s tips let Stamford, Connecticut-based SAC and its CR Intrinsic Investors unit sell more than $960 million in Elan and Wyeth securities before a July 29, 2008, announcement of the drug-trial results. The SEC also sued Gilman.
“At the center of the scheme was the cultivation and corruption of a renowned medical doctor,” U.S. Attorney Preet Bharara said yesterday at a news conference in Manhattan. “He is prepared to testify in connection with a non-prosecution agreement.”
Gilman wasn’t charged with a crime or mentioned by name in the Federal Bureau of Investigation complaint against Martoma unsealed yesterday in federal court in New York. Gilman was named in a non-prosecution agreement made public yesterday by prosecutors. He didn’t return calls to his home and office in Ann Arbor, Michigan.
“He is cooperating with the SEC and the U.S. Attorney’s Office,” his lawyer, Marc Mukasey, said.
Martoma’s lawyer, Charles Stillman, has said he is confident his client will be exonerated.
Bharara declined to say why Gilman, whom he didn’t name, wasn’t charged. The non-prosecution agreement between Gilman and prosecutors, dated Nov. 15, requires him to forfeit $186,781, representing his payments from Elan and an expert-networking firm that isn’t identified.
Matthew Callahan, the FBI agent who wrote the 21-page criminal complaint, mentioned five times that he spoke with a cooperating witness whom he described as a neurology professor at a “leading medical school.” The SEC complaint names Gilman.
Gilman worked as a consultant for Gerson Lehrman Group Scientific Advisory Board starting in 2002, according to a curriculum vitae posted online by the University of Michigan. Loren Riegelhaupt, a spokesman for Gerson Lehrman, a New York-based expert-network firm, declined to comment on the case.
Gilman earned almost $108,000 for 59 consultations with Martoma, CR Intrinsic and the firm referred to as “Investment Adviser A,” according to the SEC. He also served as a consultant to Elan and Wyeth from 2003 until 2009. Elan paid him $79,000 for his work on bapi in 2007 and 2008, the SEC said.
Gilman’s conduct raises fresh questions about firms that match investors with experts in subjects that could move stock prices, said Erik Gordon, a University of Michigan business professor who follows the pharmaceutical industry.
“If the allegations are true, it’s reprehensible conduct for someone who has misused a position of trust,” said Gordon, who added that he doesn’t know Gilman. “This is crookery of really the lowest possible ethical standards. It doesn’t get much lower.”
Kara Gavin, a spokeswoman for the University of Michigan Health System, didn’t immediately return a call seeking comment on Gilman. Sheryll Marshall, an administrative assistant in the university’s neurology department, said Gilman is well-respected and often participated in medical research.
“Everybody comes to him for answers, discussing their patients with him,” Marshall said. He’s “very nice, soft-spoken. Seems like everybody just loves him.”
Gilman earned his undergraduate degree in 1954 and medical degree in 1957, both from the University of California at Los Angeles. He was on the faculties at Harvard Medical School and Columbia University before heading to the University of Michigan, according to the school health system’s website.
He was chairman of Michigan’s department of neurology from 1977 to 2004, with research work focusing on neurodegenerative disorders including Parkinson’s disease and Alzheimer’s. He’s director of the Michigan Alzheimer’s Disease Research Center in the university’s medical school, according to the website.
In 2003, the university hospital’s neurology service was named after Gilman, a past president of the American Neurological Association, according to the website. He holds an endowed chair at the school, is a fellow of the Royal College of Physicians, and is author or co-author of more than 200 peer-reviewed articles.
Along with Elan and Wyeth, he consulted for Johnson & Johnson, Pfizer Inc., Merck & Co. and other drug makers, along with the U.S. Food and Drug Administration, according to Gilman’s curriculum vitae.
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.
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.”
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.
“Mr. Cohen and SAC are confident that they have acted appropriately and will continue to cooperate with the government’s inquiry,” Jonathan Gasthalter, an SAC spokesman, said yesterday in an e-mail statement.
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).