As part of the U.S. Securities and Exchange Commission’s investigation into what may become the largest insider-trading scheme ever, University neurology Prof. Sidney Gilman signed a non-prosecution agreement on Wednesday after being sued by federal authorities. The agreement eliminates the possibility of any criminal charges being filed against Gilman and requires him to pay $234,000 in damages.

Gilman appears to be another stepping stone in a much larger investigation of Matthew Martoma, a portfolio manager at CR Intrinsic Investors, a hedge fund management firm based in Connecticut. The SEC has already gone after Martoma, but their main target appears to be Wall Street mogul Steve Cohen, the founder and owner of SAC Capital Advisors, the parent company of CR Intrinsic Investors.

Gilman was accused of leaking information regarding trials for an Alzheimer drug. With this non-public information, Martoma allegedly withdrew his company’s $700-million investment in two pharmaceutical companies. Martoma’s company then went on to place a significant short sale against the two companies. This resulted in $83 million in profits for SAC and the avoidance of a $194-million loss. SAC retained Gilman as a consultant for $108,000.

The University has released a statement claiming it is taking “this situation very seriously and is carefully reviewing all of Dr. Gilman’s activities while a faculty member at our University.” The statement adds that the University will follow the guidelines in place regarding consulting work and clinical trials.

Gilman’s future at the University of Michigan Health System is still unclear. Though he seems to have escaped the U.S. Securities and Exchange Commission without any criminal charges, the University would still be able to take disciplinary action. Gilman’s lawyer attests to his client’s continued cooperation with authorities in a statement Wednesday. An article in The New York Times explains how Gilman’s testimony could be critical in the SEC’s case against Martoma. This additional testimony could force Martoma to sign an agreement with prosecutors and testify against Cohen.

As one of the top institutes for higher education, the University must hold its faculty to the highest level of academic integrity, which Gilman’s actions clearly violated. As one of the University’s highest-paid professors, Gilman should be a role model for his students and other members of faculty. The University must understand the importance of the precedent their reaction to these allegations will set for the entire school.

It’s still too early to predict what type of punishment the University should implement against Gilman. As its statement suggests, the judicial process will result in further information being released, and based upon that knowledge, the University can act. Some have speculated that Gilman passed on the results of the clinical trials not knowing that they would be used as insider information by Martoma.

Furthermore, there are examples of traders taking advantage of medical professionals who sometimes lack complete understanding of SEC rules and regulations. They try to gain some bit of non-public information, which to a medical professional might be inconsequential and harmless, but in the hands of a trader could be extremely important. If this is the case, Gilman has been presented with an opportunity to redeem himself by helping the authorities crack down on Martoma. This would give a University faculty member the opportunity to admit he made a mistake and concurrently show his true character by testifying and bringing these individuals to justice.

However, if it’s discovered that Gilman acted knowingly out of personal interest, he should no longer have any connection with the University. If this is the case, he contributed to the greedy, manipulative culture that caused our economy’s recent struggles. That type of person has no place at our beloved University or its hospital.

Once additional details surrounding Gilman’s motives come forward, I can only hope that University will act with fairness. I want to believe that Gilman acted unknowingly and has found himself caught up in an extremely unfortunate situation. If so, he should act like a true Wolverine and demonstrate his sound character by assisting the SEC in their pursuit of the real criminals in this case.

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