SEC v. CR Intrinsic Investors, LLC; Mathew Martoma; and Dr. Sidney Gilman, Southern District of New York (Feb. 3, 2021) — Complaint

AIRERO 
12 
CV 84 
New York Regional Office 
3 
World Financial Center, Suite 400 
New York, NY 10281-1022 
(212) 336-0181 
UNITED STATES 
DISTRICT COURT 
SOUTHERN DISTRICT OF NEW YORK 
SECURITIES AND EXCHANGE COMMISSION, 
Plaintiff, 
-against-
COMPLAINT 
CR INTRINSIC INVESTORS, LLC, 
MATHEW MARTOMA, ECFCASE 
and 
DR. SIDNEY GILMAN, 
Defendants. 
Plaintiff Securities and Exchange Commission ("Commission"), for its Complaint 
against defendants 
CR Intrinsic Investors, LLC ("CR Intrinsic"), Mathew Martoma 
("Martoma"), and Dr. Sidney Gilman ("Gilman"), alleges as follows: 
SUMMARY 
1. This is an insider trading case where affiliated investment advisers and 
their hedge funds made over $276 million in illegal profits or avoided losses in July 2008 
by trading ahead of a negative public announcement involving the clinical trial results for 
an Alzheimer's drug being jointly developed by Elan Corporation, plc ("Elan") and 
Wyeth. 

2. Martoma, then a portfolio manager at CR Intrinsic, an unregistered 
investment adviser, perpetrated the scheme with Gilman, a professor 
of neurology at the 
University 
of Michigan Medical School. Gilman served as the chairman of the Safety 
Monitoring Committee (the "SMC") overseeing the clinical trial, and was selected by 
Elan and Wyeth to present the final clinical trial results at a July 29, 2008 medical 
conference, which was to coincide with the after-market hours public announcement 
of 
the trial results by the two companies (the "July 29 Announcement"). 
3. Martoma met Gilman through paid consultations that took place between 
2006 and 2008, and were arranged by a New York-based expert network firm. During 
these consultations, Gilman provided Martoma with material nonpublic information 
about the ongoing clinical trial. 
In addition, starting on or around July 17, 2008, Gilman 
provided Martoma with the actual, detailed results 
of the clinical trial, iii advance ofthe 
July 29 Announcement. 
4. After Martoma received this information, he caused hedge fund portfolios 
managed by 
CR Intrinsic as well as hedge fund portfolios managed by an affiliated 
investment adviser ("Investment Adviser A") not only to liquidate their combined long 
positions in Elan and Wyeth, worth over $700 million, but also to take substantial short 
positions, eventually selling over $960 million in Elan and Wyeth securities in just over a 
week. This massive re-positioning allowed the 
CR Intrinsic and Investment Adviser A 
hedge funds to collectively reap illicit profits and avoid losses 
of over $276 million. 
5. These illicit gains resulted from trades placed by or on behalf ofthe CR 
Intrinsic portfolios controlled by Martoma, and the Investment Adviser A portfolios 
2 


controlled by that entity's portfolio manager ("Portfolio Manager A"), who collaborated 
closely with Martoma in making the trading decisions. 
6. 
At the end of2008, Martoma received a $9.3 million bonus, a significant 
portion 
ofwhich was attributable to the illegal profits that the CR Intrinsic and 
Investment Adviser A hedge funds had generated in this scheme. 
7. Gilman received over $100,000 from the expert network firm for his 
consultations with Martoma and others at 
CR Intrinsic and Investment Adviser A. 
NATURE OF THE PROCEEDINGS AND RELIEF SOUGHT 
8. The Commission brings this action pursuant to the authority conferred 
upon it 
by Section 20(b) ofthe Securities Act of 1933 ("Securities Act") [15 U.S.C. § 
77t(b)] and Section 21(d) 
ofthe Securities Exchange Act of 1934 ("Exchange Act") [15 
U.S.C. § 78u(d)]. The Commission seeks permanent injunctions against each 
ofthe 
defendants, enjoining them from engaging in the transactions, acts, practices, and courses 
ofbusiness alleged in this Complaint, and disgorgement, on a joint and several basis, of 
all ill-gotten gains, including profits realized and losses avoided from the unlawful 
insider trading activity set forth in this Complaint, together with prejudgment interest. 
The Commission also seeks civil penalties pursuant 
to Section 21A ofthe Exchange Act 
[15 U.S.C. § 78u-1]. The Commission seeks any other relief the Court may deem 
appropriate pursuant to Section 21(d)(5) 
ofthe Exchange Act [15 U.S.C. § 78u(d)(5)]. 
JURISDICTION AND VENUE 
9. This Court has jurisdiction over this action pursuant to Sections 20(b ), 
20(d), and 22(a) 
ofthe Securities Act [15 U.S.C. §§ 77t(b), 77t(d), and 77v(a)] and 
3 


Sections 21(d), 21(e), and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 
78aa]. 
10. Venue lies in this Court pursuant to Sections 20(b) and 22(a) 
ofthe 
Securities Act [15 U.S.C. §§ 77t(b) and 77v(a)], and Sections 21(d), 21A, and 27 ofthe 
Exchange Act [15 U.S.C. §§ 78u(d), 78u-1, and 78aa]. Certain ofthe acts, practices, 
transactions, and courses ofbusiness alleged in this Complaint occurred within the 
Southern District 
ofNew York. The expert network firm, which arranged telephone calls 
between Martoma and Gilman, and paid Gilman for the consultations, is headquartered in 
New York, New York. Investment Adviser A has an office in New York, New York, and 
Martoma occasionally used this office, including for one meeting with Gilman. During 
the time 
ofthe conduct at issue, Wyeth and Elan securities were listed on the New York 
Stock Exchange (the "NYSE"), which is located in New York, New York. 
DEFENDANTS 
11. CR Intrinsic is  an unregistered investment adviser located in Stamford, 
Connecticut and an affiliate 
of Investment Adviser A. 
12. Martoma, age 38, resides in Boca Raton, Florida. Martoma worked at 
CR Intrinsic between 2006 and 2010, serving as a portfolio manager from at least January 
1, 2008 until his departure from CR Intrinsic in 2010. At all relevant times, Martoma had 
trading authority over certain portfolios at 
CR Intrinsic. 
13. Gilman, age 80, resides in 
Ann Arbor, Michigan. Gilman is a medical 
doctor 
by training, and a professor of neurology at the University of Michigan Medical 
School. Gilman served as a consultant to Elan and Wyeth from 2003 until2009, when 
Elan sold its interest in certain drugs to Jannsen/Pfizer. Gilman also moonlighted as a 
4 


consultant for the expert network firm and was paid approximately $1,000 per hour for 
his consultations. 
RELEVANT 
ENTITIES AND INDIVIDUAL 
14. Elan is a biotechnology company incorporated in Ireland, with its 
principal place 
ofbusiness in Dublin, Ireland. Elan's Ordinary Shares trade on the Irish 
Stock Exchange and the London Stock Exchange and its American Depositary Receipts 
("ADRs")-each representing one Ordinary Share-trade on the NYSE under the 
symbol "ELN." Elan has reported 
as a foreign issuer since at least 1996. 
15. Wyeth was a pharmaceutical company incorporated in Delaware with its 
principal place 
ofbusiness in Madison, New Jersey. Wyeth's securities were registered 
with the Commission pursuant to Section 12(b) 
of the Exchange Act and its stock traded 
on the NYSE under the symbol "WYE" until Wyeth was acquired by Pfizer in 2009. 
16. Investment Adviser A is a registered investment adviser with affiliated 
hedge funds, located in New York, New York and Stamford, Connecticut. 
17. Portfolio Manager A is  the owner and founder of Investment Adviser A 
and CR Intrinsic, and is a senior portfolio manager at Investment Adviser A. 
FACTS 
Non-Public Clinical 
Trials for Alzheimer's Drug Conducted by Elan and Wyeth 
18. Before a pharmaceutical company can release a new drug, it must conduct 
clinical trials to determine whether the drug is  safe and effective in providing treatment to 
patients. Clinical trials generally proceed in three phases. In Phase 
I, a trial tests the drug 
on a small group 
ofpeople (generally, 20-80) to determine its safety, determine a safe 
dosage range, and identify side-effects. In Phase II, the drug is  given to a larger group 
of 
5 


people (generally, 200-300) to determine if it is effective and further evaluate its safety. 
Finally, in Phase III, the drug is given to large groups 
ofpeople to confirm its 
effectiveness, its safety and to monitor any side-effects. 
19. Between 
2006 and 2008, Elan and Wyeth jointly conducted a Phase II 
clinical trial for a potential drug to treat Alzheimer's disease called bapineuzumab 
("bapi") (the "Phase II Trial"). The Phase II Trial was designed to assess the safety and 
tolerability 
ofbapi in mild-to-moderate Alzheimer's disease, and to explore bapi's 
efficacy at a range 
ofdoses. 
20. Elan and Wyeth released top-line results 
of the Phase II  Trial on June 17, 
2008 (the "June 
17 Announcement"), and released the detailed final results ofthe trial in 
the July 29 Announcement. The market reacted positively to the June 
17 Announcement; 
the day after the announcement, the stock prices 
ofElan and Wyeth rose more than 10% 
and 4%, respectively. However, following 
.the June 17 Announcement, investors were 
immediately looking ahead to the expected release 
ofthe detailed results on July 29. As 
one analyst put it, the "[p]resentation 
ofmore complete data at [a scheduled conference 
on Alzheimer's disease] at the end of July will be a much anticipated event as investors 
should gain much greater insight into the drug's safety and efficacy profile as well as 
whether there may be the possibility for an accelerated registration strategy." 
21. Despite the market's positive reaction to the June 
17 Announcement, the 
more detailed July 29 Announcement failed to meet the market's expectations and caused 
the stock price of Elan to plummet nearly 42% and the stock price of Wyeth to drop 
almost 12% by the end 
ofthe day following the announcement. 
6 


Gilman's Access to Material Nonpublic Information Concerning the Phase II Trial 
and his Duty 
of Confidentiality 
22. Gilman, who served as a consultant for Elan, had continuing access to 
material nonpublic information concerning the Phase II Trial. First, Gilman served as the 
chairman 
of the Phase II Trial's SMC, which met regularly between 2006 and 2008 to 
discuss the health 
ofthe trial participants. In addition, Gilman agreed to present, on 
behalf 
of Elan and Wyeth, the Phase II Trial results at the International Conference on 
Alzheimer's Disease (the "ICAD"), a medical conference that was scheduled to be held 
on July 29, 2008. As a result of agreeing to. serve as the presenter at the ICAD, Gilman 
was given access to the full Phase II  Trial results approximately two weeks prior to the 
July 29 Announcement. Elan paid Gilman approximately $79,000 for his consultations 
concerning bapi in 2007 and 2008. 
23. By virtue 
of his roles in the clinical trial, and in accordance with the terms 
of his contract with Elan, Gilman owed Elan a duty to hold in strict confidence all 
information he learned in connection with his participation in the clinical trial and to use 
such information only for Elan's benefit. The consulting agreement between Elan and 
Gilman provided that 
"[a]ny and all information which Elan may disclose to Consultant 
under this Agreement will be considered confidential 
...."  In addition, the SMC 
Operating Guidelines, to which Gilman was subject, provided that "strict confidentiality 
will be maintained by all the SMC members in accordance with written agreement with" 
Elan. 
24. Gilman also received training on the prohibitions 
ofthe federal securities 
laws from the expert network firm, which repeatedly reminded Gilman not to share 
7 


nonpublic information with clients. Emails sent to Gilman by the expert network firm 
also listed bapi as a topic that Gilman was 
"not allowed to discuss." 
Gilman Provides Martoma Material Nonpublic Information Concerning the 
Phase II Trial 
25. Gilman first met Martoma through paid consultations arranged by the 
expert network firm. Between 2006 and 2009, Gilman earned nearly $108,000 from 
fifty-nine consultations with portfolio managers and analysts at 
CR Intrinsic and 
Investment Adviser A, including forty-two consultations 
just with Martoma. Over time, 
Gilman developed a personal relationship with Martoma, eventually coming to view 
Martoma as a friend and pupil. 
26. Gilman provided Martoma with material nonpublic information 
concerning the Phase II Trial starting in at least 2007. 
As a member ofthe SMC, Gilman 
received periodic updates from Elan concerning nonpublic safety data for the ongoing 
trial. For example, 
in advance of each SMC meeting, Elan sent Gilman a Power Point 
presentation that included dosage information, and information concerning side-effects 
that patients in the Phase II Trial were experiencing. 
27. Starting in at least 
2007, Gilman would call Martoma after an SMC 
meeting to share with Martoma what he had 
just learned during the meeting. During 
these calls, Gilman discussed the PowerPoint presentations and provided Martoma with 
his perspective 
on the results. Gilman's consultations with Martoma frequently occurred 
on the same day or shortly after Gilman had attended the SMC meeting. For example, 
Gilman had consultations with Martoma on February 9, 2007 (the day following an SMC 
meeting), October 9, 2007 (less than three hours after an SMC meeting), and March 18, 
2008 (three hours after 
an SMC meeting). 
8 


28. Martoma and Gilman coordinated their expert network consultations 
around scheduled SMC meetings. For example, 
on August 23,2007, Gilman emailed 
Martoma, saying "[t]he SMC teleconference will be postponed until the following week. 
Should we postpone our planned teleconferences until a more definitive date [for the 
SMC teleconference] has been established?" Likewise, when the SMC rp.eeting was not 
rescheduled as expected, Gilman emailed Martoma on_September 5, 2007 to report that 
the SMC meeting had still not been scheduled and noted to Martoma, "you may want to 
postpone [our scheduled conference call] until there is more to discuss." Gilman next 
consulted with Martoma through the expert network firm 
on October 9, 2007-three 
hours after the next SMC meeting. 
29. On at least one occasion prior to July 2008, Gilman emailed Martoma 
concerning specific -and as yet nonpublic -data from the Phase II Trial that Gilman 
had obtained from a PowerPoint presentation from Elan. The email to Martoma, which 
Gilman labeled "For Your Eyes Only" and "High Priority," explicitly referenced the 
dropout rate for the bapi clinical trial and referred to how many patients took bapi during 
each round 
ofthe trial. The figures used in the email (including certain mathematical 
errors) were taken directly from a slide in the Elan-prepared PowerPoint presentation 
used at the March 18, 2008 SMC meeting. 
30. Martoma and Gilman also took steps to conceal the true topic 
oftheir 
conversations from the expert network firm. For example, when Martoma scheduled a 
consultation with Gilman three hours after the March 18, 2008 SMC meeting, Martoma 
reported to the expert network firm that the purpose 
ofthe call was "Follow-up with Dr. 
Gilman: AAN Abstract Preview" even though Martoma and Gilman had discussed the 
9 


Phase II Trial during the consultation. Later, in advance ofa consultation that Gilman's 
personal calendar noted was to discuss side-effects that the Phase II Trial was finding in 
patients taking bapi, Gilman emailed Martoma and asked him to set up· a consultation 
with the expert network firm, suggesting that Martoma tell the expert network firm that 
the consultation was to discuss a drug to treat Parkinson's disease. 
The 
CR Intrinsic and Investment Adviser A Portfolios Establish Long Positions in 
Elan and Wyeth Prior to July 2008 
31. Throughout 2007 and up to July 2008, the CR Intrinsic and Investment 
Adviser A portfolios established substantial long positions in Elan and Wyeth securities. 
As 
ofJune 30, 2008, the CR Intrinsic portfolios owned over $233 million worth of Elan 
securities and over $80 million of Wyeth stock. The combined holdings in Elan and 
Wyeth securities represented nearly 14% 
ofthe CR Intrinsic portfolios' entire equity 
position at that time. Similarly, as of June 30, 2008, the Investment Adviser A portfolios 
owned over $293 million 
of Wyeth stock and over $95 million of Elan securities, which 
represented over 4% 
of the Investment Adviser A portfolios' entire equity position at that 
time. Finally, in addition, the Investment Adviser A portfolios also held an equity swap 
position with respect to 12 million shares 
of Wyeth stock.
1 
32. CR Intrinsic's and Investment Adviser A's Elan and Wyeth positions were 
held primarily in portfolios controlled by Martoma and Portfolio Manager A, 
respectively. Martoma included Elan and Wyeth as "long ideas" in his weekly portfolio 
1 
An equity swap is  a transaction, typically entered into with a broker-dealer, where a 
party receives cash flow based on the performance 
of the underlying equity for a 
specified period 
oftime in exchange for paying a premium to the broker-dealer. 
Generally, a party will sell its equity position and buy the economic interest on the shares 
it sold via an equity swap when it desires to free up cash. 
10 


updates circulated between January 1, 2008 and early July 2008 to Portfolio Manager A, 
among others, and listed the release 
of the Phase II  Trial results as an "(u]pcoming 
catalyst." Portfolio Manager A invested in Elan and Wyeth securities based in part on the 
advice 
ofMartoma. 
33. Martoma and Portfolio Manager A maintained their bullish positions 
in 
Elan and Wyeth even though there was significant dissent within CR Intrinsic and 
Investment Adviser A on the wisdom 
of a large unhedged investment in Elan and Wyeth 
securities. In March and April 
of2008, two analysts at CR Intrinsic repeatedly sent 
emails to Portfolio Manager A advocating against the Elan and Wyeth positions and 
suggesting trading strategies designed to hedge them. 
34. For example, on March 26, 2008, one 
ofthese analysts sent Portfolio 
Manager A an email with the subject line "ELN, (important, please read) negative reads 
from company and other buysiders" and listed several reasons why the analyst was 
concerned with the Elan position. Portfolio Manager A forwarded the email to Martoma, 
who responded, "I read the message. Nothing worrisome here. Let me know when you 
are free to discuss in detail." Martoma and Portfolio Manager A made no changes to 
their holdings despite the analysts' concerns. In fact, after the June 
17 Announcement, 
Portfolio Manager A indicated he would no longer consider any investment ideas in Elan 
or Wyeth from these two 
CR Intrinsic analysts. 
Gilman's July 2008 Communications with Martoma Concerning the Trial Results 
35. Martoma maintained his bullish view ofElan after the June 17 
Announcement. In fact, in a June 30, 2008 email (sent when Elan securities were trading 
at approximately $35 per share), Martoma told Portfolio Manager A that he intended to 
11 


add further to the Elan position, saying, "I think stock breaks $40 ..."following the July 
29 Announcement. 
36. In late June, Gilman learned that he likely would be selected to present the 
Phase II Trial results at the ICAD on July 29. After finding out about his selection, 
Gilman sent an email to Martoma with the subject line "Some news" and told Martoma to 
"[p]lease set up [an expert network firm] conversation re MS." During this consultation 
-purportedly about MS -Gilman informed Martoma that he would be the presenter 
ofthe final clinical trial results at the ICAD on July 29. After being named the presenter, 
Gilman arranged to travel to Elan's offices on July 15 and 16, 2008, so that he could 
learn the full results 
ofthe Phase II  Trial. 
37. Thereafter, in the weeks leading up to the July 29 Announcement, Gilman 
had several telephone calls with Martoma during which he provided Martoma with 
material nonpublic information regarding not only the safety results, but also the efficacy 
results for 
the Phase II Trial. For example, on Friday, July 11, 2008, Gilman participated 
in an SMC meeting in which the safety results for the completed Phase II  Trial as a whole 
were discussed. Two days later, on Sunday, July 13, Gilman spoke with Martoma for 
more than 1 hour and 40 minutes. During this call, Gilman provided confidential 
information to Martoma concerning the completed Phase II  Trial safety results. Gilman, 
in fact, explicitly noted in his electronic calendar that the purpose 
of this call with 
Martoma was to discuss "SAEs in bap" -referring to serious adverse effects, also 
known as side-effects, found in patients taking bapi. 
12 


38. Towards the end ofthe July 13 call, Martoma and Gilman each created 
Outlook Calendar entries reflecting that they intended to speak again on July 17, 
2008­
the day after Gilman returned from his scheduled meetings with Elan. 
·   39. On July 15,2008, Gilman traveled to San Francisco in a private plane 

arranged by Elan to participate 
in two days of meetings concerning the Phase II Trial 

efficacy results. During these meetings, Gilman was briefed on the complete efficacy 

results ofthe trial, and also reviewed and commented upon a PowerPoint presentation 

that he would use to present the results at the ICAD. 

40. 
On July 17, 2008, after Gilman returned to Ann Arbor, an Elan officer sent 
Gilman an updated ICAD PowerPoint presentation in an email labeled "Confidential, Do 
Not Distribute." The twenty-four page PowerPoint included summaries 
of the detailed 
efficacy results and safety results for the Phase II Trial as well as additional commentary 
on how Elan and Wyeth were interpreting the data. 
41. Later in the afternoon 
of July 17, 2008, Gilman and Martoma had another 
lengthy phone call during which Gilman provided Martoma with confidential information 
regarding the detailed results 
ofthe Phase II  Trial, including all the information contained 
in the PowerPoint presentation. At or about 3:00 pm on July 17, 2008, Martoma was 
.  picked up at Investment Adviser A's New York office for a one-way trip to his home in 
Greenwich, Connecticut. At 4:15 pm, Martoma called Gilman from his home phone and 
talked to Gilman for approximately 1 hour and 45 minutes. 
42. Shortly after this call, Gilman sent the PowerPoint presentation to 
Martoma. Martoma subsequently called Gilman to request the password needed to open 
the encrypted file, which Gilman provided. 
13 


43. Gilman and Martoma continued to communicate after their July 17 
conversation in the days leading up to the July 29 Announcement. In addition to three 
short calls on July 18, Martoma and Gilman had a 39-minute conversation on July 22, a 
23-minute conversation 
on July 24, and an approximately 11-minute conversation the day 
before the July 29 Announcement. 
Martoma, CR Intrinsic, and Investment Adviser A Trade Elan and Wyeth 
Securities Based on the Material Nonpublic Information from Gilman 
44. On the morning of Sunday, July 20, 2008, following his July 17 and 18 
calls with Gilman, Martoma sought to speak with Portfolio Manager A about the Elan 
positions that the 
CR Intrinsic and Investment Adviser A portfolios had amassed to that 
point, telling Portfolio Manager A by email that "[i]t's important" that they speak. 
Martoma and Portfolio Manager A thereafter spoke for nearly 20 minutes. Martoma 
indicated to Portfolio Manager A that Martoma was no longer "comfortable" with the 
Elan investments held by the CR Intrinsic and Investment Adviser A portfolios. 
45. 
On Monday, July 21, 2008, Portfolio Manager 
A's head trader at 
Investment Adviser A (the "Head Trader") began selling Elan and Wyeth securities held 
in the 
CR Intrinsic and Investment Adviser A portfolios that Martoma and Portfolio 
Manager A controlled. Before the market opened on July 21, 2008, these portfolios·held 
over 10.5 million Elan securities worth over $365 million and over 
7.1 million Wyeth 
shares worth over $335 million, for a total position size 
of over $700 million. 
46. At Portfolio Manager A's direction, the trades that the Head Trader 
executed in Elan and Wyeth securities between July 
21 and July 29, 2008 were kept 
confidential even within 
CR Intrinsic and Investment Adviser A. For example, on July 
21,2008, the Head Trader emailed Martoma concerning the sales: "obviously no one 
14 


knows except me[,] you and [Portfolio Manager A]." Later, after the Head Trader sold 
CR Intrinsic's and Investment Adviser A's portfolios' existing position in Elan, the Head 
Trader reported to Portfolio Manager A that "[w]e executed a sale 
ofover 10.5 million 
ELN for [various portfolios at CR Intrinsic and Investment Adviser 
A] at an avg price of 
34.21. This was executed quietly and efficiently over a 4 day period through algos and 
darkpools and booked into two firm accounts that have very limited viewing access." 
4
7. Martoma also urged Portfolio Manager A and the Head Trader to sell the 
Elan securities in the CR Intrinsic and Investment Adviser A portfolios quickly. For 
example, on July 22, ten minutes after the Head Trader called Martoma, Martoma sent 
Portfolio Manager A an instant message at 1:22:34 p.m. saying, "would do more today 
if 
possible[,]" suggesting that Portfolio Manager A sell more Elan ADRs. At 1 :22:50 p.m., 
Portfolio Manager 
A responded, in relevant part, "we are done on 2.3 today[.]" Martoma 
replied, 
"my sense is today-thurs are best days so ifpossible to do more, would do so[.]" 
After receiving Martoma' s message, Portfolio Manager A sold over an additional 2.2 
million Elan ADRs on July 22. 
48. In total, between July 21, 2008 and July 29, 2008 (the last trading day 
before the post-market July 29 Announcement), the 
CR Intrinsic and Investment Adviser 
A portfolios sold over 
15 million Elan securities for gross proceeds ofover $500 million. 
Although the investment advisers' portfolios achieved a zero balance in Elan securities 
by July 25, 2008, they continued to sell short Elan securities until the July 29 
Announcement? By the close 
of the market on July 29, 2008, the CR Intrinsic and 
2 
To "sell short" is to sell a security that one does not own, but rather has arranged to 
borrow from a third party, with the intention 
ofpurchasing (also called "covering") the 
15 


.-, 
Investment Adviser A portfolios had a combined short position of approximately 4.5 
million Elan securities. The trading by the 
CR Intrinsic and Investment Adviser A 
portfolios in Elan securities constituted over 20% 
ofthe reported trading volume in the 
seven days prior to the July 29 Announcement. 
49. In addition, between July 21, 2008 and July 
29,2008, the CR Intrinsic and 
Investment Adviser A portfolios sold over 10.4 million shares 
of Wyeth for gross 
proceeds 
ofover $460 million, including over 6.1 million Wyeth shares worth over$270 
million during the very day 
ofthe July 29 Announcement. As a result ofthese sales, the 
CR Intrinsic and Investment Adviser A portfolios had a zero balance in Wyeth stock 
during the trading day on July 29,2008, but continued to place short sales that day. By 
the close 
ofthe market on July 29, 2008, the CR Intrinsic and Investment Adviser A 
portfolios had a combined short position 
of approximately 3.3 million Wyeth shares. The 
trading 
by the CR Intrinsic and Investment Adviser A portfolios in Wyeth securities 
constituted over 11% 
ofthe reported trading volume in the seven days prior to the July 29 
Announcement. 
50. The chart below summarizes 
CR Intrinsic's and Investment Adviser A's 
portfolios' combined equity positions in Elan and Wyeth before the markets opened on 
July 21, 2008, and the trading with respect to those securities prior to the July 29 
Announcement: 
security at a later date to deliver to the lender. A short seller stands to gain 
ifthe price of 
the security declines between the short sale and the purchase because the short seller has 
sold the security at a price that is greater than the purchase price. 
16 

Description Elan ADRs Wyeth Stock 
Equity Positions Before Trading 
Opened On July 21, 2008 
> 10.5 million shares >
7.1 million shares 
Value 
ofEquity Positions >$365 million >$335 million 
Sales (Long and Short) between 
July 
21 and July 29 
> 
15 million shares 
> 10.4 million shares 
Total Sales Proceeds >$500 million >$460 million 
Short Position Held Prior to July 
29 Announcement 
4.5 million shares 3.3 million shares 
Percentage 
of Marketwide Sales 
Volume 
>20% 
>11% 
51. CR Intrinsic and Investment Adviser A also placed options trades in Elan 
ADRs that bet on the 
ADR share price going down. For example, on July 28 and July 29, 
the CR Intrinsic and Investment Adviser A portfolios purchased over 
$1 million worth of 
Elan put options with strike prices below the Elan ADR share price on those trading 
days.
3 
Elan and Wyeth Issue a Negative Announcement Concerning the Phase II Trial 
52. On July 29, 2008, after the close of U.S. securities markets, Gilman 
presented the results ofthe Phase II  Trial at the ICAD, and Elan and Wyeth issued a press 
release summarizing the results. Although Elan and Wyeth emphasized the positive 
aspects 
ofthe trial, the press release and Gilman's presentation included additional details 
3 
A put option is a financial contract between two parties that gives the buyer the right, 
but not the obligation, to sell an agreed quantity 
of stock during a specified time period at 
a specified price. A buyer 
of a put option pays a premium to purchase this right, and 
generally stands to gain 
if the price of the stock decreases. 
17 


not included in the June 17 Announcement, and the market reacted negatively to the full 
results. 
53. On July 30, 2008, the first trading day after the July 29 Announcement, 
Elan's share price fell from $33.75 (the closing price 
on the day ofthe announcement) to 
-··--· 
$19.63 (the closing price on the day after the announcement), a decline ofnearly 42%. 
Wyeth's stock price fell from $45.11 (the closing price 
on the day ofthe announcement) 
to $39.74 (the closing price the day after the announcement), a decrease 
ofnearly 12%. 
Profits Reaped and Losses Avoided by 
CR Intrinsic and Investment Adviser A 
54. As a result 
ofthe trades that were entered into during the period between 
Martoma's conversation with Gilman on July 17, 2008 and the July 29 Announcement, 
CR Intrinsic and Investment Adviser A portfolios in which Martoma and Portfolio 
Manager A had trading authority reaped profits and avoided losses 
of over $276 million 
as follows (figures are approximate): 
Description Elan Wyeth 
Profits from Short Sales 
$59.2 million $16 million 
Profits from Option Trades 
$6.6 million 
NIA 
Losses A voided $154.2 million 
$40 million 
Total Illicit Gain $220 million 
$56 million 
55. Following certain allocations made after the July 29 Announcement, the 
profits and avoided losses were distributed roughly evenly between the 
CR Intrinsic 
portfolios, which reaped profits and avoided losses 
ofapproximately $137.9 million, and 
the Investment Adviser A portfolios, which reaped profits and avoided losses 
of 
approximately $138.4 million. 
18 


Martoma's Reward for His Profitable Trades and His Departure From CR Intrinsic 
56. At the end of2008, Martoma received a bonus of over $9.3 million that 
included a percentage of the Elan trading profits in the CR Intrinsic portfolios, as well as 
a share 
ofthe Elan profits in certain Investment Adviser A portfolios. 
57. In contrast to 2008, which had been a banner year for him, Martoma was 
unable to generate such winning trades or outsized returns in 2009 and 2010, and did not 
receive a bonus in either ofthose years. In a 2010 email suggesting that Martoma's 
employment be terminated, an Investment Adviser A officer stated that Martoma had 
been a "one trick pony with Elan." 
CLAIMS FOR RELIEF 
CLAIM I 

Violations 
of Section lO(b) of the Exchange Act and Rule lOb-S Thereunder 

(Against all Defendants) 

58. The Commission realleges and incorporates by reference paragraphs 
1 
through 57, as though fully set forth herein. 
59. The information provided by Gilman to Martoma concerning the Phase II 
Trial was, in each case, material and nonpublic. In addition, the information was, in each 
case, considered confidential by Elan and the SMC for the Phase II Trial, which were the 
sources 
ofthe information, and Elan and the SMC had policies protecting confidential 
information. 
60. Gilman provided the material nonpublic information to Martoma in breach 
ofthe fiduciary duty that Gilman owed to Elan and the SMC, and did so with the 
expectation 
of receiving a benefit. 
19 


61. Martoma knew, recklessly disregarded, or should have known, that 
Gilman owed a fiduciary duty, or obligation arising from a similar relationship 
oftrust 
and confidence, to keep the -information confidential. 
62. Martoma and 
CR Intrinsic each tipped their respective tippees material 
nonpublic information concerning the Phase II Trial, with the expectation 
ofa benefit 
from doing so, and each knew, recklessly disregarded, or should have known, that the 
information was conveyed in breach 
ofa fiduciary duty, or obligation arising from a 
similar relationship 
of trust and confidence. 
63. Martoma and 
CR Intrinsic each knew, recklessly disregarded, or should 
have known, that the material nonpublic information concerning the Phase II  Trial that 
each received from their respective tippers was disclosed or misappropriated in breach 
of 
a fiduciary duty, or similar relationship of trust and confidence. 
64. 
CR Intrinsic, Martoma, and Gilman are jointly and severally liable for the 
trading 
ofthe CR Intrinsic funds and the Investment Adviser A funds because they each 
directly or indirectly effectuated the trades on behalf 
of the funds and/or unlawfully 
disclosed the material nonpublic information to the funds. 
65. By virtue 
ofthe foregoing, defendants CR Intrinsic, Martoma, and 
Gilman, and each 
of them, in connection with the purchase or sale ofsecurities, by the 
use 
ofthe means or instrumentalities of interstate commerce, or ofthe mails, or a facility 
ofa national securities exchange, directly or indirectly: (a) employed devices, schemes 
or artifices to defraud; (b) made untrue statements ofmaterial fact or omitted to state 
material facts necessary in order to make the statements made, in the light 
ofthe 
circumstances under which they were made, not misleading; or (c) engaged in acts, 
20 


practices or courses ofbusiness which operated or would have operated as a fraud or 
deceit upon persons. 
66. By virtue 
ofthe foregoing, defendants CR Intrinsic, Martoma, and 
Gilman, and each 
ofthem, directly or indirectly, violated, and unless enjoined, will again 
violate, Section lO(b) 
ofthe Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 
thereunder [17 C.F.R. 
§ 240.10b-5]. 
CLAIM II 

Violations 
of Section 17 (a) of the Securities Act 

(Against all Defendants) 

67. The Commission realleges and incorporates by reference paragraphs 1 
through 66, as though fully set forth herein. 
68. By virtue 
of the foregoing, in the offer or sale of securities, by the use of 
means or instruments oftransportation or communication in interstate commerce or by 
the use 
ofthe mails, directly or indirectly, defendants CR Intrinsic, Martoma, and 
Gilman, and each 
ofthem: (a) employed devices, schemes or artifices to defraud; (b) 
obtained money or property by means 
ofan untrue statement of a material fact or omitted 
to state a material fact necessary in order to make the statements made, in light 
ofthe 
circumstances under which they were made, not misleading; and (c) engaged in 
transactions, practices or courses 
ofbusiness which operate or would operate as a fraud 
or deceit upon a purchaser. 
69. By reason 
of the conduct described above, each ofthe defendants directly 
or indirectly violated, and unless enjoined will again violate, Section 17(a) of the 
Securities Act 
[15 U.S.C. § 77q(a)]. 
21 


RELIEF SOUGHT 

WHEREFORE, the Commission respectfully requests that this Court enter a 
Final Judgment: 
I. 
Permanently restraining and enjoining defendants CR Intrinsic, Martoma, and 
Gilman, and each 
ofthem, from violating Section 10(b) ofthe Exchange Act [15 U.S.C. § 
78j(b)], and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]; 
II. 
Permanently restraining and enjoining defendants CR Intrinsic, Martoma, and 
Gilman, and each 
ofthem, from violating Section 17(a) of the Securities Act [15 U.S.C. 
§ 77q(a)]; 
III. 
Ordering defendants 
CR Intrinsic, Martoma, and Gilman to disgorge, on a joint 
and several basis, with prejudgment interest, all ill-gotten gains received as a result of the 
conduct alleged in this Complaint, including their ill-gotten gains, and the illicit trading 
profits, other ill-gotten gains, and/or losses avoided 
of their direct and downstream 
tippees; 
IV. 
Ordering defendants CR Intrinsic, Martoma, and Gilman to pay civil monetary 
penalties pursuant to Section 21A 
ofthe Exchange Act [15 U.S.C. §§ 78u(d)(3), 78u-1]; 
and 
22 


v. 
Granting such other and further relief as this Court may deem just and proper. 
Dated: 
New York, New York 
November 20, 2012 
Of Counsel: 
Amelia A. Cottrell ([email protected]) 
Charles 
D. Riely ([email protected]) 
Matthew 
J. Watkins ([email protected]) 
Associate Regional Director 
Attorney for Plaintiff 
SECURITIES AND EXCHANGE 
COMMISSION 
New York Regional Office 
3 World Financial Center, Suite 400 
New York, New York 10281-1022 
(212) 336-0181 
[email protected] 
23 

AIRERO 12 CV 84 
New York Regional Office 
3 World Financial Center, Suite 400 
New York, NY 10281-1022 
(212) 336-0181 

UNITED STATES DISTRICT COURT 
SOUTHERN DISTRICT OF NEW YORK 

SECURITIES AND EXCHANGE COMMISSION, 

Plaintiff, 

-against- COMPLAINT 

CR INTRINSIC INVESTORS, LLC, 
MATHEW MARTOMA, ECFCASE 

and 
DR. SIDNEY GILMAN, 

Defendants. 

Plaintiff Securities and Exchange Commission ("Commission"), for its Complaint 

against defendants CR Intrinsic Investors, LLC ("CR Intrinsic"), Mathew Martoma 

("Martoma"), and Dr. Sidney Gilman ("Gilman"), alleges as follows: 

SUMMARY 

1. This is an insider trading case where affiliated investment advisers and 

their hedge funds made over $276 million in illegal profits or avoided losses in July 2008 

by trading ahead of a negative public announcement involving the clinical trial results for 

an Alzheimer's drug being jointly developed by Elan Corporation, plc ("Elan") and 

Wyeth. 



2. Martoma, then a portfolio manager at CR Intrinsic, an unregistered 

investment adviser, perpetrated the scheme with Gilman, a professor of neurology at the 

University of Michigan Medical School. Gilman served as the chairman of the Safety 

Monitoring Committee (the "SMC") overseeing the clinical trial, and was selected by 

Elan and Wyeth to present the final clinical trial results at a July 29, 2008 medical 

conference, which was to coincide with the after-market hours public announcement of 

the trial results by the two companies (the "July 29 Announcement"). 

3. Martoma met Gilman through paid consultations that took place between 

2006 and 2008, and were arranged by a New York-based expert network firm. During 

these consultations, Gilman provided Martoma with material nonpublic information 

about the ongoing clinical trial. In addition, starting on or around July 17, 2008, Gilman 

provided Martoma with the actual, detailed results of the clinical trial, iii advance of the 

July 29 Announcement. 

4. After Martoma received this information, he caused hedge fund portfolios 

managed by CR Intrinsic as well as hedge fund portfolios managed by an affiliated 

investment adviser ("Investment Adviser A") not only to liquidate their combined long 

positions in Elan and Wyeth, worth over $700 million, but also to take substantial short 

positions, eventually selling over $960 million in Elan and Wyeth securities in just over a 

week. This massive re-positioning allowed the CR Intrinsic and Investment Adviser A 

hedge funds to collectively reap illicit profits and avoid losses of over $276 million. 

5. These illicit gains resulted from trades placed by or on behalf of the CR 

Intrinsic portfolios controlled by Martoma, and the Investment Adviser A portfolios 

2 




controlled by that entity's portfolio manager ("Portfolio Manager A"), who collaborated 

closely with Martoma in making the trading decisions. 

6. At the end of2008, Martoma received a $9.3 million bonus, a significant 

portion of which was attributable to the illegal profits that the CR Intrinsic and 

Investment Adviser A hedge funds had generated in this scheme. 

7. Gilman received over $100,000 from the expert network firm for his 

consultations with Martoma and others at CR Intrinsic and Investment Adviser A. 

NATURE OF THE PROCEEDINGS AND RELIEF SOUGHT 

8. The Commission brings this action pursuant to the authority conferred 

upon it by Section 20(b) ofthe Securities Act of 1933 ("Securities Act") [15 U.S.C. § 

77t(b)] and Section 21(d) ofthe Securities Exchange Act of 1934 ("Exchange Act") [15 

U.S.C. § 78u(d)]. The Commission seeks permanent injunctions against each of the 

defendants, enjoining them from engaging in the transactions, acts, practices, and courses 

of business alleged in this Complaint, and disgorgement, on a joint and several basis, of 

all ill-gotten gains, including profits realized and losses avoided from the unlawful 

insider trading activity set forth in this Complaint, together with prejudgment interest. 

The Commission also seeks civil penalties pursuant to Section 21A of the Exchange Act 

[15 U.S.C. § 78u-1]. The Commission seeks any other relief the Court may deem 

appropriate pursuant to Section 21(d)(5) of the Exchange Act [15 U.S.C. § 78u(d)(5)]. 

JURISDICTION AND VENUE 

9. This Court has jurisdiction over this action pursuant to Sections 20(b ), 

20(d), and 22(a) ofthe Securities Act [15 U.S.C. §§ 77t(b), 77t(d), and 77v(a)] and 

3 




Sections 21(d), 21(e), and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 

78aa]. 

10. Venue lies in this Court pursuant to Sections 20(b) and 22(a) ofthe 

Securities Act [15 U.S.C. §§ 77t(b) and 77v(a)], and Sections 21(d), 21A, and 27 ofthe 

Exchange Act [15 U.S.C. §§ 78u(d), 78u-1, and 78aa]. Certain of the acts, practices, 

transactions, and courses of business alleged in this Complaint occurred within the 

Southern District ofNew York. The expert network firm, which arranged telephone calls 

between Martoma and Gilman, and paid Gilman for the consultations, is headquartered in 

New York, New York. Investment Adviser A has an office in New York, New York, and 

Martoma occasionally used this office, including for one meeting with Gilman. During 

the time of the conduct at issue, Wyeth and Elan securities were listed on the New York 

Stock Exchange (the "NYSE"), which is located in New York, New York. 

DEFENDANTS 

11. CR Intrinsic is an unregistered investment adviser located in Stamford, 

Connecticut and an affiliate of Investment Adviser A. 

12. Martoma, age 38, resides in Boca Raton, Florida. Martoma worked at 

CR Intrinsic between 2006 and 2010, serving as a portfolio manager from at least January 

1, 2008 until his departure from CR Intrinsic in 2010. At all relevant times, Martoma had 

trading authority over certain portfolios at CR Intrinsic. 

13. Gilman, age 80, resides in Ann Arbor, Michigan. Gilman is a medical 

doctor by training, and a professor of neurology at the University of Michigan Medical 

School. Gilman served as a consultant to Elan and Wyeth from 2003 until2009, when 

Elan sold its interest in certain drugs to Jannsen/Pfizer. Gilman also moonlighted as a 

4 




consultant for the expert network firm and was paid approximately $1,000 per hour for 

his consultations. 

RELEVANT ENTITIES AND INDIVIDUAL 

14. Elan is a biotechnology company incorporated in Ireland, with its 

principal place of business in Dublin, Ireland. Elan's Ordinary Shares trade on the Irish 

Stock Exchange and the London Stock Exchange and its American Depositary Receipts 

("ADRs")- each representing one Ordinary Share- trade on the NYSE under the 

symbol "ELN." Elan has reported as a foreign issuer since at least 1996. 

15. Wyeth was a pharmaceutical company incorporated in Delaware with its 

principal place of business in Madison, New Jersey. Wyeth's securities were registered 

with the Commission pursuant to Section 12(b) of the Exchange Act and its stock traded 

on the NYSE under the symbol "WYE" until Wyeth was acquired by Pfizer in 2009. 

16. Investment Adviser A is a registered investment adviser with affiliated 

hedge funds, located in New York, New York and Stamford, Connecticut. 

17. Portfolio Manager A is the owner and founder of Investment Adviser A 

and CR Intrinsic, and is a senior portfolio manager at Investment Adviser A. 

FACTS 

Non-Public Clinical Trials for Alzheimer's Drug Conducted by Elan and Wyeth 

18. Before a pharmaceutical company can release a new drug, it must conduct 

clinical trials to determine whether the drug is safe and effective in providing treatment to 

patients. Clinical trials generally proceed in three phases. In Phase I, a trial tests the drug 

on a small group ofpeople (generally, 20-80) to determine its safety, determine a safe 

dosage range, and identify side-effects. In Phase II, the drug is given to a larger group of 

5 




people (generally, 200-300) to determine if it is effective and further evaluate its safety. 

Finally, in Phase III, the drug is given to large groups ofpeople to confirm its 

effectiveness, its safety and to monitor any side-effects. 

19. Between 2006 and 2008, Elan and Wyeth jointly conducted a Phase II 

clinical trial for a potential drug to treat Alzheimer's disease called bapineuzumab 

("bapi") (the "Phase II Trial"). The Phase II Trial was designed to assess the safety and 

tolerability ofbapi in mild-to-moderate Alzheimer's disease, and to explore bapi's 

efficacy at a range of doses. 

20. Elan and Wyeth released top-line results of the Phase II Trial on June 17, 

2008 (the "June 17 Announcement"), and released the detailed final results of the trial in 

the July 29 Announcement. The market reacted positively to the June 17 Announcement; 

the day after the announcement, the stock prices ofElan and Wyeth rose more than 10% 

and 4%, respectively. However, following .the June 17 Announcement, investors were 

immediately looking ahead to the expected release of the detailed results on July 29. As 

one analyst put it, the "[p]resentation ofmore complete data at [a scheduled conference 

on Alzheimer's disease] at the end of July will be a much anticipated event as investors 

should gain much greater insight into the drug's safety and efficacy profile as well as 

whether there may be the possibility for an accelerated registration strategy." 

21. Despite the market's positive reaction to the June 17 Announcement, the 

more detailed July 29 Announcement failed to meet the market's expectations and caused 

the stock price of Elan to plummet nearly 42% and the stock price of Wyeth to drop 

almost 12% by the end of the day following the announcement. 

6 




Gilman's Access to Material Nonpublic Information Concerning the Phase II Trial 
and his Duty of Confidentiality 

22. Gilman, who served as a consultant for Elan, had continuing access to 

material nonpublic information concerning the Phase II Trial. First, Gilman served as the 

chairman of the Phase II Trial's SMC, which met regularly between 2006 and 2008 to 

discuss the health of the trial participants. In addition, Gilman agreed to present, on 

behalf of Elan and Wyeth, the Phase II Trial results at the International Conference on 

Alzheimer's Disease (the "ICAD"), a medical conference that was scheduled to be held 

on July 29, 2008. As a result of agreeing to. serve as the presenter at the ICAD, Gilman 

was given access to the full Phase II Trial results approximately two weeks prior to the 

July 29 Announcement. Elan paid Gilman approximately $79,000 for his consultations 

concerning bapi in 2007 and 2008. 

23. By virtue of his roles in the clinical trial, and in accordance with the terms 

of his contract with Elan, Gilman owed Elan a duty to hold in strict confidence all 

information he learned in connection with his participation in the clinical trial and to use 

such information only for Elan's benefit. The consulting agreement between Elan and 

Gilman provided that "[a]ny and all information which Elan may disclose to Consultant 

under this Agreement will be considered confidential ...." In addition, the SMC 

Operating Guidelines, to which Gilman was subject, provided that "strict confidentiality 

will be maintained by all the SMC members in accordance with written agreement with" 

Elan. 

24. Gilman also received training on the prohibitions ofthe federal securities 

laws from the expert network firm, which repeatedly reminded Gilman not to share 

7 




nonpublic information with clients. Emails sent to Gilman by the expert network firm 

also listed bapi as a topic that Gilman was "not allowed to discuss." 

Gilman Provides Martoma Material Nonpublic Information Concerning the 
Phase II Trial 

25. Gilman first met Martoma through paid consultations arranged by the 

expert network firm. Between 2006 and 2009, Gilman earned nearly $108,000 from 

fifty-nine consultations with portfolio managers and analysts at CR Intrinsic and 

Investment Adviser A, including forty-two consultations just with Martoma. Over time, 

Gilman developed a personal relationship with Martoma, eventually coming to view 

Martoma as a friend and pupil. 

26. Gilman provided Martoma with material nonpublic information 

concerning the Phase II Trial starting in at least 2007. As a member of the SMC, Gilman 

received periodic updates from Elan concerning nonpublic safety data for the ongoing 

trial. For example, in advance of each SMC meeting, Elan sent Gilman a Power Point 

presentation that included dosage information, and information concerning side-effects 

that patients in the Phase II Trial were experiencing. 

27. Starting in at least 2007, Gilman would call Martoma after an SMC 

meeting to share with Martoma what he had just learned during the meeting. During 

these calls, Gilman discussed the PowerPoint presentations and provided Martoma with 

his perspective on the results. Gilman's consultations with Martoma frequently occurred 

on the same day or shortly after Gilman had attended the SMC meeting. For example, 

Gilman had consultations with Martoma on February 9, 2007 (the day following an SMC 

meeting), October 9, 2007 (less than three hours after an SMC meeting), and March 18, 

2008 (three hours after an SMC meeting). 

8 




28. Martoma and Gilman coordinated their expert network consultations 

around scheduled SMC meetings. For example, on August 23,2007, Gilman emailed 

Martoma, saying "[t]he SMC teleconference will be postponed until the following week. 

Should we postpone our planned teleconferences until a more definitive date [for the 

SMC teleconference] has been established?" Likewise, when the SMC rp.eeting was not 

rescheduled as expected, Gilman emailed Martoma on_September 5, 2007 to report that 

the SMC meeting had still not been scheduled and noted to Martoma, "you may want to 

postpone [our scheduled conference call] until there is more to discuss." Gilman next 

consulted with Martoma through the expert network firm on October 9, 2007- three 

hours after the next SMC meeting. 

29. On at least one occasion prior to July 2008, Gilman emailed Martoma 

concerning specific - and as yet nonpublic - data from the Phase II Trial that Gilman 

had obtained from a PowerPoint presentation from Elan. The email to Martoma, which 

Gilman labeled "For Your Eyes Only" and "High Priority," explicitly referenced the 

dropout rate for the bapi clinical trial and referred to how many patients took bapi during 

each round of the trial. The figures used in the email (including certain mathematical 

errors) were taken directly from a slide in the Elan-prepared PowerPoint presentation 

used at the March 18, 2008 SMC meeting. 

30. Martoma and Gilman also took steps to conceal the true topic oftheir 

conversations from the expert network firm. For example, when Martoma scheduled a 

consultation with Gilman three hours after the March 18, 2008 SMC meeting, Martoma 

reported to the expert network firm that the purpose of the call was "Follow-up with Dr. 

Gilman: AAN Abstract Preview" even though Martoma and Gilman had discussed the 

9 




Phase II Trial during the consultation. Later, in advance of a consultation that Gilman's 

personal calendar noted was to discuss side-effects that the Phase II Trial was finding in 

patients taking bapi, Gilman emailed Martoma and asked him to set up· a consultation 

with the expert network firm, suggesting that Martoma tell the expert network firm that 

the consultation was to discuss a drug to treat Parkinson's disease. 

The CR Intrinsic and Investment Adviser A Portfolios Establish Long Positions in 
Elan and Wyeth Prior to July 2008 

31. Throughout 2007 and up to July 2008, the CR Intrinsic and Investment 

Adviser A portfolios established substantial long positions in Elan and Wyeth securities. 

As of June 30, 2008, the CR Intrinsic portfolios owned over $233 million worth of Elan 

securities and over $80 million of Wyeth stock. The combined holdings in Elan and 

Wyeth securities represented nearly 14% ofthe CR Intrinsic portfolios' entire equity 

position at that time. Similarly, as of June 30, 2008, the Investment Adviser A portfolios 

owned over $293 million of Wyeth stock and over $95 million of Elan securities, which 

represented over 4% of the Investment Adviser A portfolios' entire equity position at that 

time. Finally, in addition, the Investment Adviser A portfolios also held an equity swap 

position with respect to 12 million shares of Wyeth stock. 1 

32. CR Intrinsic's and Investment Adviser A's Elan and Wyeth positions were 

held primarily in portfolios controlled by Martoma and Portfolio Manager A, 

respectively. Martoma included Elan and Wyeth as "long ideas" in his weekly portfolio 

1 An equity swap is a transaction, typically entered into with a broker-dealer, where a 
party receives cash flow based on the performance of the underlying equity for a 
specified period oftime in exchange for paying a premium to the broker-dealer. 
Generally, a party will sell its equity position and buy the economic interest on the shares 
it sold via an equity swap when it desires to free up cash. 

10 




updates circulated between January 1, 2008 and early July 2008 to Portfolio Manager A, 

among others, and listed the release of the Phase II Trial results as an "(u]pcoming 

catalyst." Portfolio Manager A invested in Elan and Wyeth securities based in part on the 

advice ofMartoma. 

33. Martoma and Portfolio Manager A maintained their bullish positions in 

Elan and Wyeth even though there was significant dissent within CR Intrinsic and 

Investment Adviser A on the wisdom of a large unhedged investment in Elan and Wyeth 

securities. In March and April of2008, two analysts at CR Intrinsic repeatedly sent 

emails to Portfolio Manager A advocating against the Elan and Wyeth positions and 

suggesting trading strategies designed to hedge them. 

34. For example, on March 26, 2008, one of these analysts sent Portfolio 

Manager A an email with the subject line "ELN, (important, please read) negative reads 

from company and other buysiders" and listed several reasons why the analyst was 

concerned with the Elan position. Portfolio Manager A forwarded the email to Martoma, 

who responded, "I read the message. Nothing worrisome here. Let me know when you 

are free to discuss in detail." Martoma and Portfolio Manager A made no changes to 

their holdings despite the analysts' concerns. In fact, after the June 17 Announcement, 

Portfolio Manager A indicated he would no longer consider any investment ideas in Elan 

or Wyeth from these two CR Intrinsic analysts. 

Gilman's July 2008 Communications with Martoma Concerning the Trial Results 

35. Martoma maintained his bullish view of Elan after the June 17 

Announcement. In fact, in a June 30, 2008 email (sent when Elan securities were trading 

at approximately $35 per share), Martoma told Portfolio Manager A that he intended to 

11 




add further to the Elan position, saying, "I think stock breaks $40 ..."following the July 

29 Announcement. 

36. In late June, Gilman learned that he likely would be selected to present the 

Phase II Trial results at the ICAD on July 29. After finding out about his selection, 

Gilman sent an email to Martoma with the subject line "Some news" and told Martoma to 

"[p]lease set up [an expert network firm] conversation re MS." During this consultation 

-purportedly about MS - Gilman informed Martoma that he would be the presenter 

of the final clinical trial results at the ICAD on July 29. After being named the presenter, 

Gilman arranged to travel to Elan's offices on July 15 and 16, 2008, so that he could 

learn the full results of the Phase II Trial. 

37. Thereafter, in the weeks leading up to the July 29 Announcement, Gilman 

had several telephone calls with Martoma during which he provided Martoma with 

material nonpublic information regarding not only the safety results, but also the efficacy 

results for the Phase II Trial. For example, on Friday, July 11, 2008, Gilman participated 

in an SMC meeting in which the safety results for the completed Phase II Trial as a whole 

were discussed. Two days later, on Sunday, July 13, Gilman spoke with Martoma for 

more than 1 hour and 40 minutes. During this call, Gilman provided confidential 

information to Martoma concerning the completed Phase II Trial safety results. Gilman, 

in fact, explicitly noted in his electronic calendar that the purpose of this call with 

Martoma was to discuss "SAEs in bap" - referring to serious adverse effects, also 

known as side-effects, found in patients taking bapi. 

12 




38. Towards the end of the July 13 call, Martoma and Gilman each created 

Outlook Calendar entries reflecting that they intended to speak again on July 17, 2008­

the day after Gilman returned from his scheduled meetings with Elan. 

· 39. On July 15,2008, Gilman traveled to San Francisco in a private plane 


arranged by Elan to participate in two days of meetings concerning the Phase II Trial 


efficacy results. During these meetings, Gilman was briefed on the complete efficacy 


results of the trial, and also reviewed and commented upon a PowerPoint presentation 


that he would use to present the results at the ICAD. 


40. On July 17, 2008, after Gilman returned to Ann Arbor, an Elan officer sent 

Gilman an updated ICAD PowerPoint presentation in an email labeled "Confidential, Do 

Not Distribute." The twenty-four page PowerPoint included summaries of the detailed 

efficacy results and safety results for the Phase II Trial as well as additional commentary 

on how Elan and Wyeth were interpreting the data. 

41. Later in the afternoon of July 17, 2008, Gilman and Martoma had another 

lengthy phone call during which Gilman provided Martoma with confidential information 

regarding the detailed results of the Phase II Trial, including all the information contained 

in the PowerPoint presentation. At or about 3:00 pm on July 17, 2008, Martoma was 

. picked up at Investment Adviser A's New York office for a one-way trip to his home in 

Greenwich, Connecticut. At 4:15 pm, Martoma called Gilman from his home phone and 

talked to Gilman for approximately 1 hour and 45 minutes. 

42. Shortly after this call, Gilman sent the PowerPoint presentation to 

Martoma. Martoma subsequently called Gilman to request the password needed to open 

the encrypted file, which Gilman provided. 

13 




43. Gilman and Martoma continued to communicate after their July 17 

conversation in the days leading up to the July 29 Announcement. In addition to three 

short calls on July 18, Martoma and Gilman had a 39-minute conversation on July 22, a 

23-minute conversation on July 24, and an approximately 11-minute conversation the day 

before the July 29 Announcement. 

Martoma, CR Intrinsic, and Investment Adviser A Trade Elan and Wyeth 
Securities Based on the Material Nonpublic Information from Gilman 

44. On the morning of Sunday, July 20, 2008, following his July 17 and 18 

calls with Gilman, Martoma sought to speak with Portfolio Manager A about the Elan 

positions that the CR Intrinsic and Investment Adviser A portfolios had amassed to that 

point, telling Portfolio Manager A by email that "[i]t's important" that they speak. 

Martoma and Portfolio Manager A thereafter spoke for nearly 20 minutes. Martoma 

indicated to Portfolio Manager A that Martoma was no longer "comfortable" with the 

Elan investments held by the CR Intrinsic and Investment Adviser A portfolios. 

45. On Monday, July 21, 2008, Portfolio Manager A's head trader at 

Investment Adviser A (the "Head Trader") began selling Elan and Wyeth securities held 

in the CR Intrinsic and Investment Adviser A portfolios that Martoma and Portfolio 

Manager A controlled. Before the market opened on July 21, 2008, these portfolios·held 

over 10.5 million Elan securities worth over $365 million and over 7.1 million Wyeth 

shares worth over $335 million, for a total position size of over $700 million. 

46. At Portfolio Manager A's direction, the trades that the Head Trader 

executed in Elan and Wyeth securities between July 21 and July 29, 2008 were kept 

confidential even within CR Intrinsic and Investment Adviser A. For example, on July 

21,2008, the Head Trader emailed Martoma concerning the sales: "obviously no one 

14 




knows except me[,] you and [Portfolio Manager A]." Later, after the Head Trader sold 

CR Intrinsic's and Investment Adviser A's portfolios' existing position in Elan, the Head 

Trader reported to Portfolio Manager A that "[w]e executed a sale of over 10.5 million 

ELN for [various portfolios at CR Intrinsic and Investment Adviser A] at an avg price of 

34.21. This was executed quietly and efficiently over a 4 day period through algos and 

darkpools and booked into two firm accounts that have very limited viewing access." 

47. Martoma also urged Portfolio Manager A and the Head Trader to sell the 

Elan securities in the CR Intrinsic and Investment Adviser A portfolios quickly. For 

example, on July 22, ten minutes after the Head Trader called Martoma, Martoma sent 

Portfolio Manager A an instant message at 1:22:34 p.m. saying, "would do more today if 

possible[,]" suggesting that Portfolio Manager A sell more Elan ADRs. At 1 :22:50 p.m., 

Portfolio Manager A responded, in relevant part, "we are done on 2.3 today[.]" Martoma 

replied, "my sense is today-thurs are best days so ifpossible to do more, would do so[.]" 

After receiving Martoma' s message, Portfolio Manager A sold over an additional 2.2 

million Elan ADRs on July 22. 

48. In total, between July 21, 2008 and July 29, 2008 (the last trading day 

before the post-market July 29 Announcement), the CR Intrinsic and Investment Adviser 

A portfolios sold over 15 million Elan securities for gross proceeds of over $500 million. 

Although the investment advisers' portfolios achieved a zero balance in Elan securities 

by July 25, 2008, they continued to sell short Elan securities until the July 29 

Announcement? By the close of the market on July 29, 2008, the CR Intrinsic and 

2 To "sell short" is to sell a security that one does not own, but rather has arranged to 
borrow from a third party, with the intention ofpurchasing (also called "covering") the 

15 




.-, 

Investment Adviser A portfolios had a combined short position of approximately 4.5 

million Elan securities. The trading by the CR Intrinsic and Investment Adviser A 

portfolios in Elan securities constituted over 20% of the reported trading volume in the 

seven days prior to the July 29 Announcement. 

49. In addition, between July 21, 2008 and July 29,2008, the CR Intrinsic and 

Investment Adviser A portfolios sold over 10.4 million shares of Wyeth for gross 

proceeds ofover $460 million, including over 6.1 million Wyeth shares worth over$270 

million during the very day of the July 29 Announcement. As a result of these sales, the 

CR Intrinsic and Investment Adviser A portfolios had a zero balance in Wyeth stock 

during the trading day on July 29,2008, but continued to place short sales that day. By 

the close of the market on July 29, 2008, the CR Intrinsic and Investment Adviser A 

portfolios had a combined short position of approximately 3.3 million Wyeth shares. The 

trading by the CR Intrinsic and Investment Adviser A portfolios in Wyeth securities 

constituted over 11% of the reported trading volume in the seven days prior to the July 29 

Announcement. 

50. The chart below summarizes CR Intrinsic's and Investment Adviser A's 

portfolios' combined equity positions in Elan and Wyeth before the markets opened on 

July 21, 2008, and the trading with respect to those securities prior to the July 29 

Announcement: 

security at a later date to deliver to the lender. A short seller stands to gain if the price of 
the security declines between the short sale and the purchase because the short seller has 
sold the security at a price that is greater than the purchase price. 

16 



Description Elan ADRs Wyeth Stock 

Equity Positions Before Trading 
Opened On July 21, 2008 

> 10.5 million shares >7.1 million shares 

Value ofEquity Positions >$365 million >$335 million 

Sales (Long and Short) between 
July 21 and July 29 

> 15 million shares > 10.4 million shares 

Total Sales Proceeds >$500 million >$460 million 

Short Position Held Prior to July 
29 Announcement 

4.5 million shares 3.3 million shares 

Percentage of Marketwide Sales 
Volume 

>20% >11% 

51. CR Intrinsic and Investment Adviser A also placed options trades in Elan 

ADRs that bet on the ADR share price going down. For example, on July 28 and July 29, 

the CR Intrinsic and Investment Adviser A portfolios purchased over $1 million worth of 

Elan put options with strike prices below the Elan ADR share price on those trading 

days.3 

Elan and Wyeth Issue a Negative Announcement Concerning the Phase II Trial 

52. On July 29, 2008, after the close of U.S. securities markets, Gilman 

presented the results ofthe Phase II Trial at the ICAD, and Elan and Wyeth issued a press 

release summarizing the results. Although Elan and Wyeth emphasized the positive 

aspects ofthe trial, the press release and Gilman's presentation included additional details 

3 A put option is a financial contract between two parties that gives the buyer the right, 
but not the obligation, to sell an agreed quantity of stock during a specified time period at 
a specified price. A buyer of a put option pays a premium to purchase this right, and 
generally stands to gain if the price of the stock decreases. 

17 




not included in the June 17 Announcement, and the market reacted negatively to the full 

results. 

53. On July 30, 2008, the first trading day after the July 29 Announcement, 

Elan's share price fell from $33.75 (the closing price on the day ofthe announcement) to 

-··--· 

$19.63 (the closing price on the day after the announcement), a decline of nearly 42%. 

Wyeth's stock price fell from $45.11 (the closing price on the day of the announcement) 

to $39.74 (the closing price the day after the announcement), a decrease of nearly 12%. 

Profits Reaped and Losses Avoided by CR Intrinsic and Investment Adviser A 

54. As a result of the trades that were entered into during the period between 

Martoma's conversation with Gilman on July 17, 2008 and the July 29 Announcement, 

CR Intrinsic and Investment Adviser A portfolios in which Martoma and Portfolio 

Manager A had trading authority reaped profits and avoided losses of over $276 million 

as follows (figures are approximate): 

Description Elan Wyeth 

Profits from Short Sales $59.2 million $16 million 

Profits from Option Trades $6.6 million NIA 

Losses A voided $154.2 million $40 million 

Total Illicit Gain $220 million $56 million 

55. Following certain allocations made after the July 29 Announcement, the 

profits and avoided losses were distributed roughly evenly between the CR Intrinsic 

portfolios, which reaped profits and avoided losses of approximately $137.9 million, and 

the Investment Adviser A portfolios, which reaped profits and avoided losses of 

approximately $138.4 million. 

18 




Martoma's Reward for His Profitable Trades and His Departure From CR Intrinsic 

56. At the end of 2008, Martoma received a bonus of over $9.3 million that 

included a percentage of the Elan trading profits in the CR Intrinsic portfolios, as well as 

a share of the Elan profits in certain Investment Adviser A portfolios. 

57. In contrast to 2008, which had been a banner year for him, Martoma was 

unable to generate such winning trades or outsized returns in 2009 and 2010, and did not 

receive a bonus in either of those years. In a 2010 email suggesting that Martoma's 

employment be terminated, an Investment Adviser A officer stated that Martoma had 

been a "one trick pony with Elan." 

CLAIMS FOR RELIEF 

CLAIM I 

Violations of Section lO(b) of the Exchange Act and Rule lOb-S Thereunder 


(Against all Defendants) 


58. The Commission realleges and incorporates by reference paragraphs 1 

through 57, as though fully set forth herein. 

59. The information provided by Gilman to Martoma concerning the Phase II 

Trial was, in each case, material and nonpublic. In addition, the information was, in each 

case, considered confidential by Elan and the SMC for the Phase II Trial, which were the 

sources of the information, and Elan and the SMC had policies protecting confidential 

information. 

60. Gilman provided the material nonpublic information to Martoma in breach 

ofthe fiduciary duty that Gilman owed to Elan and the SMC, and did so with the 

expectation of receiving a benefit. 

19 




61. Martoma knew, recklessly disregarded, or should have known, that 

Gilman owed a fiduciary duty, or obligation arising from a similar relationship of trust 

and confidence, to keep the -information confidential. 

62. Martoma and CR Intrinsic each tipped their respective tippees material 

nonpublic information concerning the Phase II Trial, with the expectation of a benefit 

from doing so, and each knew, recklessly disregarded, or should have known, that the 

information was conveyed in breach of a fiduciary duty, or obligation arising from a 

similar relationship of trust and confidence. 

63. Martoma and CR Intrinsic each knew, recklessly disregarded, or should 

have known, that the material nonpublic information concerning the Phase II Trial that 

each received from their respective tippers was disclosed or misappropriated in breach of 

a fiduciary duty, or similar relationship of trust and confidence. 

64. CR Intrinsic, Martoma, and Gilman are jointly and severally liable for the 

trading of the CR Intrinsic funds and the Investment Adviser A funds because they each 

directly or indirectly effectuated the trades on behalf of the funds and/or unlawfully 

disclosed the material nonpublic information to the funds. 

65. By virtue of the foregoing, defendants CR Intrinsic, Martoma, and 

Gilman, and each of them, in connection with the purchase or sale of securities, by the 

use of the means or instrumentalities of interstate commerce, or of the mails, or a facility 

of a national securities exchange, directly or indirectly: (a) employed devices, schemes 

or artifices to defraud; (b) made untrue statements ofmaterial fact or omitted to state 

material facts necessary in order to make the statements made, in the light of the 

circumstances under which they were made, not misleading; or (c) engaged in acts, 

20 




practices or courses of business which operated or would have operated as a fraud or 

deceit upon persons. 

66. By virtue ofthe foregoing, defendants CR Intrinsic, Martoma, and 

Gilman, and each of them, directly or indirectly, violated, and unless enjoined, will again 

violate, Section lO(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 

thereunder [17 C.F.R. § 240.10b-5]. 

CLAIM II 

Violations of Section 17 (a) of the Securities Act 


(Against all Defendants) 


67. The Commission realleges and incorporates by reference paragraphs 1 

through 66, as though fully set forth herein. 

68. By virtue of the foregoing, in the offer or sale of securities, by the use of 

means or instruments of transportation or communication in interstate commerce or by 

the use of the mails, directly or indirectly, defendants CR Intrinsic, Martoma, and 

Gilman, and each of them: (a) employed devices, schemes or artifices to defraud; (b) 

obtained money or property by means of an untrue statement of a material fact or omitted 

to state a material fact necessary in order to make the statements made, in light of the 

circumstances under which they were made, not misleading; and (c) engaged in 

transactions, practices or courses of business which operate or would operate as a fraud 

or deceit upon a purchaser. 

69. By reason of the conduct described above, each of the defendants directly 

or indirectly violated, and unless enjoined will again violate, Section 17(a) of the 

Securities Act [15 U.S.C. § 77q(a)]. 

21 




RELIEF SOUGHT 


WHEREFORE, the Commission respectfully requests that this Court enter a 

Final Judgment: 

I. 

Permanently restraining and enjoining defendants CR Intrinsic, Martoma, and 

Gilman, and each of them, from violating Section 10(b) of the Exchange Act [15 U.S.C. § 

78j(b)], and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]; 

II. 

Permanently restraining and enjoining defendants CR Intrinsic, Martoma, and 

Gilman, and each of them, from violating Section 17(a) of the Securities Act [15 U.S.C. 

§ 77q(a)]; 

III. 

Ordering defendants CR Intrinsic, Martoma, and Gilman to disgorge, on a joint 

and several basis, with prejudgment interest, all ill-gotten gains received as a result of the 

conduct alleged in this Complaint, including their ill-gotten gains, and the illicit trading 

profits, other ill-gotten gains, and/or losses avoided of their direct and downstream 

tippees; 

IV. 

Ordering defendants CR Intrinsic, Martoma, and Gilman to pay civil monetary 

penalties pursuant to Section 21A of the Exchange Act [15 U.S.C. §§ 78u(d)(3), 78u-1]; 

and 

22 




v. 

Granting such other and further relief as this Court may deem just and proper. 

Dated: New York, New York 
November 20, 2012 

Of Counsel: 

Amelia A. Cottrell ([email protected]) 
Charles D. Riely ([email protected]) 
Matthew J. Watkins ([email protected]) 

Associate Regional Director 
Attorney for Plaintiff 
SECURITIES AND EXCHANGE 
COMMISSION 
New York Regional Office 
3 World Financial Center, Suite 400 
New York, New York 10281-1022 
(212) 336-0181 
[email protected] 

23 


mailto:[email protected]
mailto:[email protected]
mailto:[email protected]
mailto:[email protected]