Insider-trading fine reaches record $600 million

By Megan R. Wilson - 03/15/13 02:54 PM ET

Federal regulators charged a hedge fund advisory firm with a record $600 million-plus punishment for insider trading on Friday.

The Securities and Exchange Commission (SEC) announced it had levied the largest ever insider-trading fine against CR Intrinsic Investors for a scheme involving trials of an Alzheimer’s drug being developed by two pharmaceutical companies, the agency said.

“The historic monetary sanctions against CR Intrinsic and its affiliates are sharp warning that the SEC will hold hedge fund advisory firms and their funds accountable when employees break the law to benefit the firm,” said George S. Canellos, acting director of the SEC’s division of enforcement.

The investigation, which the regulator says is ongoing, centers on a portfolio manager named Mathew Martoma, who allegedly was tipped off to poor results of the drug trials from a doctor, Sidney Gilman, who the two companies had picked to release the final results to the public.

The leaked details, two weeks before the scheduled public release, lead Martoma and the firm to sell more than $960 million worth of stock in the two pharmaceutical companies — Elan Corporation and Wyeth — in just more than a week.

A New York judge has to give the final approval of the charges, which include $275 million in fines, $52 million in interest and another $275 million in damages.