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The Boston Globe

Business

US alleges $276m in insider trading dealings

Broadening crackdown puts heat on a titan

NEW YORK — Over the past half-decade, as federal authorities secured dozens of insider-trading convictions of hedge fund traders, they have tried doggedly to build a case against one of Wall Street’s most influential players: billionaire stock picker Steven A. Cohen.

On Tuesday, prosecutors appeared closer to that goal, charging a former portfolio manager at the hedge fund SAC Capital Advisors, a case that for the first time directly involves Cohen, the fund’s founder.

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Mathew Martoma, formerly of CR Intrinsic, a unit of SAC, was charged with making more than $276 million in a combination of illegal profits and avoiding losses by obtaining secret information from a doctor about clinical trials for an Alzheimer’s drug being developed by Elan and Wyeth.

The case is ‘‘the most lucrative insider-trading scheme ever charged,’’ said Preet Bharara, US attorney in Manhattan.

Cohen’s fund has been in the crosshairs of investigators since the crackdown on insider trading began. Though not charged or mentioned by name, Cohen is referred in court filings as either ‘‘Portfolio Manager A’’ or the ‘‘owner’’ of the funds involved. People briefed on the case confirmed the reference was to Cohen.

Martoma worked closely with Cohen in buying and selling large blocks of Elan and Wyeth shares, according to a lawsuit filed Tuesday by the Securities and Exchange Commission.

The government does not say Cohen knew that Martoma had confidential information about the companies’ Alzheimer drug when he bought and sold the stocks.

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SAC spokesman Jonathan Gasthalter said, ‘‘Mr. Cohen and SAC are confident that they have acted appropriately.”

From the trading floor in SAC’s Stamford, Conn., headquarters, Cohen, 56, oversees a fund that manages about $13 billion and, including borrowing from banks, possesses about $39 billion in total buying power. The fund has generated some of the best investment returns on Wall Street, averaging about 30 percent over the last two decades.

The case against Martoma is the first time the government has pointed to Cohen’s participation in a trade that may have been improper, but it is the latest in a spate of insider-trading prosecutions of former SAC employees. At least seven have been tied to the government’s multiyear investigation; three have pleaded guilty while working for Cohen.

FBI agents arrested Martoma, 38, at his home in Boca Raton, Fla. He was released on bail.

“Mathew Martoma was an exceptional portfolio manager who succeeded through hard work and the dogged pursuit of information in the public domain,’’ said his lawyer, Charles A. Stillman.

Accused by the SEC was Sidney Gilman, a neurology professor at the University of Michigan. The SEC said Gilman, 80, an Alzheimer’s expert who helped oversee the clinical trials for the drug, gave Martoma the confidential information.

Gilman is cooperating with the government and has entered into a nonprosecution deal with the US attorney, meaning criminal charges will not be brought against him.

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