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SEC sues Medical School professor in insider trading case

By Adam Rubenfire, Daily News Editor
Published November 20, 2012

Gilman has entered a non-prosecution agreement with the SEC in which he has agreed to settle the charges and cooperate in this case and related investigations in return for not being criminally charged.

In the civil case, the SEC seeks for the court to order Gilman and the other defendants to desist from the illegal activities, pay civil monetary penalties and disgorge all profits resulting from the scheme. Gilman has already agreed to pay $234,000 in settling the case.

The SEC claims that the case is the largest insider trading case it has ever charged. Robert Khuzami, the director of the SEC’s Division of Enforcement, said in a statement that the actors involved took great risk in engaging in illicit activities.

“Today’s record-setting insider trading case reinforces the cold, hard lesson of so many other recent cases that when you trade on inside information, you’re not just betting your money, but also your career, your reputation, your financial security and your liberty,” Khuzami said.

Law prof. Adam Pritchard said information about clinical trials is used in insider-trading schemes frequently.

“The value of that sort of information is potentially very substantial,” Pritchard said.

Pritchard said $276 million is a very significant profit for an insider-trading scheme.

“That is a lot of money, and a lot of money for insider trading,” Pritchard said, adding that the stock exchanges and the SEC often look for unusual, substantial trading prior to major announcements.

Pritchard said it’s not unusual for the SEC to investigate a leak of information prior to a public announcement, but the use of physicians or other experts as a source seems to be a new trend and new investigative priority for the SEC.

“You’d more frequently see somebody inside the company, but the SEC has been looking hard at some of these expert networks, and the line between the experts providing expertise and information can be a bit blurry,” Prtichard said, referring to the consulting firm through which Gilman and Martoma met.

UMHS spokesman Pete Barkey declined to comment on the case on Tuesday, citing an "ongoing federal investigation."

Neither Gilman nor his lawyer, Marc Mukasey, could be reached Tuesday evening.

Both Barkey and and Mukasey later released statements Wednesday. Read them here.

Correction appended: A previous version of this article incorrectly stated that Gilman is still a director of the Michigan Alzheimer's Center.