Feds: Hedge Fund Benefited From Insider Trading

Federal prosecutors filed another high-profile insider trading case Tuesday. A former hedge fund employee allegedly made $276 million for his fund after getting a sneak preview of clinical trial data for a new drug. The investigation may lead to even bigger cases.

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Federal prosecutors in Manhattan have brought charges in what they are calling the biggest insider trading case ever. A former hedge fund employee made about a quarter billion dollars for the fund after allegedly getting a sneak preview of clinical trial data for a new drug.

NPR's Ailsa Chang reports prosecutors believe this may lead them to even bigger cases.

AILSA CHANG, BYLINE: Prosecutors say Mathew Martoma first told his hedge fund SAC Capital to buy up the stocks of two companies that were developing an Alzheimer's drug. Then one day Martoma gets bad news. A doctor shows him really disappointing clinical trial results. And that's when he knew the fund needed to dump the stocks.

Here's Preet Bharara, the U.S. attorney in Manhattan.

PREET BHARARA: Martoma went from bull to bear, as he tried to dig his hedge fund out of a massive hole.

CHANG: The hedge fund got out in the nick of time, but prosecutors say the trades were based on inside information. Now this case could go higher up the food chain, to the guy who founded SAC Capital, billionaire Steven Cohen. Investigators have been circling Cohen for years. In their criminal complaint, prosecutors say an unnamed hedge fund owner cooperated with Martoma.

John Coffee of Columbia Law School says if prosecutors end up charging Cohen, the case would be reminiscent of the insider trading cases in the 1980s against Michael Milken and his colleagues.

JOHN COFFEE: What was important is that they were the iconic figures. They were the leading investment bankers of their day. Here we have probably the largest, most visible and most successful hedge fund of the last decade.

CHANG: But SAC says it's confident Cohen acted appropriately. And the doctor who tipped off Martoma, he's a cooperating witness now. Martoma is the 73rd person charged by Bharara's office for insider trading. They've convicted 69 already.

Ailsa Chang, NPR News, New York.

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