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Embroiled in scandal, neurology professor retires

By Adam Rubenfire, Daily News Editor
and Austen Hufford, Daily Staff Reporter
Published November 28, 2012

Neurology Prof. Sidney Gilman — who was accused by the U.S. Securities and Exchanges Commission of assisting hedge fund investors in a historically lucrative $276-million insider trading scheme — has retired from his position at the University, according to a University of Michigan Health System spokesman.

UMHS spokesman Pete Barkey said in a statement Wednesday afternoon that Gilman retired from his position effective Tuesday. Gilman was the William J. Herdman Distinguished University Professor of Neurology.

Gilman served as the chair of the Department of Neurology from 1977 to 2004, and received the Medical School’s 2010 Distinguished Achievement Award. UMHS also holds an annual Sid Gilman and Carol Barbour Lecture in Neuroscience, and the hospital’s neurology service is named in his honor

Barkey declined to comment on whether the name of the service or the lectureship would be changed.

In a civil lawsuit filed Nov. 20 in the U.S. District Court in the Southern District of New York, the SEC alleged that Gilman received about $100,000 to inform Mathew Martoma, a hedge fund portfolio manager for CR Intrinsic Investors, about the progress and negative results of a clinical trial for an Alzheimer's drug being developed by the Elan Corporation and Wyeth, Inc., now owned by Pfizer, Inc.

The SEC claims that CR Intrinsic accumulated $276 million in profits or avoided losses by short selling and liquidating its stock before Gilman made a public announcement about the drug on July 29, 2008. The SEC also asserts Martoma received a $9.3-million bonus from CR Intrinsic in 2008, much of which came from trades made on Gilman’s information.

Gilman earned about $79,000 from the Elan Corporation for being the Safety Monitoring Chair for the trials of the drug in question, bapineuzumab, according to the SEC.

Elan Corporation’s stock price fell from more than $30 in July 2008 to less than $10 in the days following the July 29, 2008 announcement. Wyeth dropped less significantly, from an average of more than $46 in days before the announcement, to about $39 for the next three days.

At the time, it was reportedby the Dow Jones Newswire that the 240-patient study found the drug had serious side effects, including fluid buildup in the brains of 12 trial participants. Safety issues with the drug worried investors, causing the value of the stocks to drop.

Martoma and Gilman were paired legally through an expert network firm. These firms are commonly used to connect those in the business world with experts in various fields, such as medicine. In recent years, the SEC has pursued a number of high profile insider trading cases in which such firms have played a role.

The firm used by Martoma and Gilman has not been officially identified, but Gilman's résumé notes that he has held a consulting position with Gerson Lehrman, among several other firms, since 2002. The Wall Street Journal reported that individuals familiar with the case have confirmed that the expert network firm used in the scheme was Gerson Lerhman.

Bret Coons — a spokesman for the Joint Commission, a hospital accreditation organization — said external decisions of individual employees would not generally affect a hospital’s accreditation unless patient safety or care quality was impacted.

“The Joint Commission's accreditation looks at issues of patient safety and quality of care and would not be applicable to the personal financial practices of employees of an accredited health care organization,” Coons said.

Coons could not confirm whether or not Gilman was being investigated.

Gilman has signed a non-prosecution agreement with the SEC, meaning he will not be criminally charged because he has agreed to testify and cooperate with further investigations. He will pay $234,000 in settling the suit.

Ora Pescovitz, the executive vice president for medical affairs, Douglas Strong, CEO of the University of Michigan Hospitals and Health Centers and Medical School Dean James Woolliscroft sent an e-mail to UMHS faculty and staff Thursday regarding the incident, reminding them to respect confidential information and maintain the integrity of the hospital and health system.

The SEC’s final target appears to be the parent company of CR Intrinsic, SAC Capital Advisors. Though he is not explicitly mentioned in the suit, it is suspected that Steven Cohen, the company’s founder and owner, is implicated in the scheme.

The SEC alleged that Martoma collaborated with CR Intrinsic’s portfolio manager, known as “Portfolio Manager A,” who is identified as the founder and owner of “Investment Adviser A” — a firm which is also alleged to have benefited from the scheme — and CR Intrinsic. The Wall Street Journal reported that people close to the investigation have identified Cohen as “Portfolio Manager A.”

Officials at SAC Capital Advisors told investors in a conference call Wednesday the company may face civil charges for its alleged role in the scheme, though the company denies the charges. The SEC reportedly sent the company a Wells notice, a document which implicates that the SEC is preparing a potential suit.