Steven A. Cohen hasn't been charged with any wrongdoing and his spokesman tells the New York Times "Mr. Cohen and SAC are confident that they have acted appropriately and will continue to cooperate with the government's inquiry."
Nevertheless, the latest case brought by the SEC and the Justice Department against a former employee of his firm raises some interesting questions.
The case against Mathew Martoma seems to be based on essentially flipping Dr. Sidney Gilman, an 80-year-old neurology professor from Michigan. If Mr. Martoma decides to go the same route and flip against Mr. Cohen in exchange for leniency from prosecutors, would that — the word of someone who was himself no Boy Scout and has an incentive to make a deal — be enough? (Reuters says "experts" say no: "experts said prosecutors lack proof that Cohen knew the trades on Elan and Wyeth were based on inside information. They said more evidence would be needed to make a case, even if Martoma agreed to testify against Cohen as part of a deal. Experts noted that prosecutors won a conviction of Rajaratnam using wire taps to show the fund manager receiving insider tips. While other convictions have been won without wire taps, they said a single witness testifying after a plea bargain with prosecutors would not stand up under cross examination.")
The SEC complaint says, "on July 15, 2008, Gilman traveled to San Francisco in a private plane arranged by Elan to participate in two days of meetings concerning Phase II Trial efficacy results." How common is it for pharmaceutical companies to shuttle doctors involved in clinical trials around the country by private jet? Why don't they fly commercial and save the shareholders and the medicine buyers, including taxpayers, some money?
How much does the FDA's drug approval process create an opportunity for these sorts of problems by setting up such high stakes for the companies and investors betting not just on whether the drug might help some people, but on whether the FDA will approve it?
Would there a way to eradicate such opportunities with technology and transparency rather than with prosecutions, so that, say, all results of clinical trials were posted in real-time on the Web for anyone (not just $1000-an-hour consulting clients of the Gerson-Lehrman Group) to see?
The Wall Street Journal reports that Dr. Gilman "was a member of the hedge fund Pequot Capital Management Inc.'s scientific advisory board from 2005 to 2007, according to his resume accessed from the University of Michigan Health System's website." The Journal doesn't mention it, but Pequot and its CEO Arthur Samberg had their own settlement with the SEC in an insider trading case, which was covered on this site here and here. That case did not involve Dr. Gilman.
The SEC complaint says that the drug company paid Dr. Gilman "about $79,000 for his consultations concerning [the Alzheimer's drug] in 2007 and 2008. It also says that "between 2006 and 2009, Gilman earned nearly $108,000 from fifty-nine consultations with portfolio managers and analysts" at Steven Cohen's firm and its affiliates. The SEC complaint doesn't say what Dr. Gilman earned from the University of Michigan or from any private medical practice he may have had in the same period, but it might make for an interesting comparison.
I know people with Alzheimer's or Alzheimer's-like symptoms, so I'm rooting even more than I normally would be for someone to come up with a drug that helps. If private planes and Mr. Cohen's capital will help them succeed faster, I'll be cheering them on. And if this particular drug ends up working it would be quite a story. Anyway, there's probably a Hollywood movie or a bestselling book to be written about this, with the closing scene being some kind of interaction between Dr. Gilman and an Alzheimer's patient with enough mental power left to understand what the doctor did.