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Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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November 20, 2012

And Since We're Talking About Insider Trading

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Posted by Derek

Here's something from just this morning, a whopping large case on illegal trading in Wyeth and Elan stock. This one involves a hedge fund manager, Mathew Martoma, and (quite disturbingly), Dr. Sidney Gilman of the University of Michigan, who was the lead investigator on a very large bapineuzumab trial for Alzheimer's. His conduct appears, from the text of the complaint, to be completely inexcusable, just a total, raw tipoff of confidential information.

I blogged at the time about the trial results, not knowing, of course, that someone had been pre-warned and was trading 20 per cent of Elan's stock volume on the news (and at least ten per cent of Wyeth's). So I take back anything I said about insider trading cases becoming more small-time over the years; this case has jerked the average right back up.

Update: Adam Feuerstein on Twitter: "Gilman's presentation of bapi data at 2008 ICAD meeting was so poorly done. It was shockingly bad. Now we know why."

Comments (18) + TrackBacks (0) | Category: Alzheimer's Disease | Business and Markets | Clinical Trials | The Dark Side


1. My 0.02 on November 20, 2012 12:47 PM writes...

For every one of the insider trading case gets caught, there are probably a thousand cases or more out there going unnoticed. IMHO, making insider trading LEGAL is the only way to solve the problem. One of main arguments for that is if it is legal, as soon as a material information becomes available, in today's information age, it becomes public (through family, friends, Facebook, six-degree of separation, ...) in no time. There is no time gap = instantly public information. However, in the current system, there is a time gap between when a material information is produced/generated and when it is "publicly released". It is very tempting and as a result hard to keep the information secret during that time gap period.

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2. Hap on November 20, 2012 1:12 PM writes...

1) You could try not cutting and pasting the same comment.

2) Getting rid of insider trading doesn't even the playing field. The difference between reliable intelligence and unreliable intelligence is knowing what the information sources are. The people trading inside know that, the people outside do not. It would seem to ordain a set of people in the know and enable them to acquire the resources to cement their position.

Alternatively, if trading volumes drive people to assume the presence of information corresponding to the direction of movement, people looking to drop a stock could simply sell some to drive prices down, and buy some to raise them, since the market can't tell a signal based on legitimate data from one based on manipulation.

I guess if you figure that the stock market is really the "global casino", your suggestion would make that much more clear. With casinos, though, the winners and losers are usually much clearer (winners - casinos, losers - everyone who plays there).

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3. luysii on November 20, 2012 1:50 PM writes...

Whenever my late father (an attorney) or his brother in law (a judge) heard of a lawyer being disbarred because of malfeasance of some sort or other (usually monetary), they felt personally stained and diminished.

As a retired neurologist, I feel the same way about Dr. Gilman. Very sad.

Certainly, I've run across some very sleazy neurologists in my day (one of whom had his license taken away). For the sordid details see

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4. My 0.02 on November 20, 2012 3:33 PM writes...


In stock market, you make a decision based on information available and your own judgement (through research). It will always be an asymmetrical situation - some people know more than others. If insider trading becomes legal, those in the know could freely disseminate privileged information if they wish to a selected group of people not in the know - that equals to public. Current system pretends to be fair that the privileged information will be disseminated all at once to the public. We all know that during the quiet period, many people come in contact with the privileged information and act on it quietly and discretely. Feds only catch a very tiny percent of these people. I believe that making insider trading legal is a much fairer system than trying to put an artificial lid on information that is financially rewarding. In other words, making insider trading legal rewards a much bigger group people than otherwise. You, as an investor, have a better chance to be rewarded - your friend is more likely to tell you something when it is legal to do so. I believe that is a good thing.

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5. Anonymous on November 20, 2012 3:38 PM writes...

This is just depressing. Add this to today's news about the $9 billion Autonomy/HP accounting fraud and it just seems like the game is just rigged and only a tiny minority are really benefiting. We might as well just give up and go home.

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6. Evorich on November 20, 2012 3:38 PM writes...

This is just depressing. Add this to today's news about the $9 billion Autonomy/HP accounting fraud and it just seems like the game is just rigged and only a tiny minority are really benefiting. We might as well just give up and go home.

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7. Hap on November 20, 2012 3:51 PM writes...

1) Most people, though, aren't going to hear about such investments - you have to either be one of the people in the know, or know someone. That excludes almost everyone. Even if a random gets that information, there's not a high probability that they can use it - the people with information on a regular basis can spend a lot of money on a stock tip, because they will get enough tips that eventually they can take advantage of one, while for most people, the cash necessary to take advantage of early information isn't there.

2) If you bankroll a company's early existence, you are still likely to get a less-than-proportionate amount of their gains unless you are connected. If you are a VC, or a pension fund, or a random, why invest if you know that you are getting a lot of risk while the people who are running the show will get most of the benefit? Your money hasn't gotten you all that much. Thus, legalizing inside information is likely to decrease the pool of investors willing to fund businesses, which theoretically is the stock market's job. Something else will form to do the job of the stock market, but no one knows if the new game will be better than the old.

3) Assuming that there are any unconnected investors left, the manipulability of stocks with inside information means that unconnected investors have to take stock movements in the absence of public information with a salt lick (are they real? are they manipulations?). Perhaps that's the case now, I don't know. It seems to increase the benefits of high-speed trading (if they aren't connected), while everyone else takes it in the pants.

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8. Matt on November 20, 2012 4:13 PM writes...

Make it legal? You're trolling, right? The people at the "sixth degree" end of separation lose, while the people at the "one" end clean them out. It is not a zero time gap but instead merely a shorter time gap. Each person has the chance to pass along the information or stop and profit. With no rule against it, it becomes irresponsible or self-punishing not to profit. That profit comes at the expense of the people farther down the whisper line. Ultimately, those people get the message (that they are getting screwed) and leave the stock market, and you can do your insider trading while the Dow hovers at 1000. Acme's Retirement Savings Mattresses become all the rage.

What's Gilman's angle on this? Was he getting money? I can't imagine any way he could miss how wrong this was--it wasn't an unguarded slip of the tongue, it was an hour and forty minutes of phone conversation plus sending a Powerpoint presentation marked "Confidential - Do Not Distribute" with complete results. At 80, he makes an unusual party to insider trading.

Nor do I get Feuerstein's twitter. I see zero connection between insider trading and shoddy presentation. If I'm cheating, I'd want my presentation squeaky clean. And if my partner had shorted the stock, I'd want the presentation to be exceedingly clear on how the trials didn't meet expectations. Even that doesn't matter, though; you can mouth the party line, but the data is out. The insider trading was essentially finished by the time of the presentation. I think the shoddy presentation is probably due to some of the thousands of other reasons presentations are poorly done.

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9. Hap on November 20, 2012 4:36 PM writes...

I wonder what Gilman got too - considering his partner raked in > $200M, a dinner at Morton's probably won't cover it.

4) If the fraction of people caught by the SEC for insider trading is relatively high (10%?) then removing the ban on insider trading means that people with money will have an almost insurmountable advantage in investing over those with less, because if you have the money, you can get the information (the only thing stopping people now is the chance of getting caught). If that fraction is as low as $0.02 asserts, then the advantge to insider trading is probably already being taken, and the ban is window dressing.

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10. Hap on November 20, 2012 5:20 PM writes...

I wonder if the grandkids have nice Cayman Islands accounts for their college funds, or maybe he just decided he wanted to explore all of the niceties he couldn't get by starring in a Kid Rock video.

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11. Matt on November 20, 2012 6:05 PM writes...

What the...?

According to this:

Gilman was given immunity from prosecution. That's really, really poor. I wonder if shareholders at the time can go after him in a civil suit? He ought to cough up every penny of the $108k consulting fee he got from Martoma, at the least. He should also be fired, but I'll bet as professor among his peers and buddies, he is untouchable. Nothing against him personally, but that whole "being forced to disgorge all of one's profits, and even spending one's time in the slammer" is an important consideration that needs to be injected to alter the perceived risks/rewards ratio.

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12. startupguy on November 21, 2012 6:26 AM writes...

"inexcusable conduct" from a professor associated with a pharmaceutical company! Naaahhhh, that never happens, please my sides are hurting from laughing so much.

I've seen so many lying professors from all the startups I've worked at, I'm surprised when I find an honest one.

Why do you think the VC's have pulled all their money from discovery based pharma startups? They're wise, they've heard it all before.

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13. Hap on November 21, 2012 10:39 AM writes...

Wonder who's going to find drugs then. Big Pharma wants someone else to find them, and if VCs won't fund discovery-based pharma startups, then where exactly is pharma going to get drugs? Academic consortia are likely to drive harder bargains (than startups) for...not much (in extreme cases, nothing - U Rochester).

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14. ProberDude on November 21, 2012 12:00 PM writes...

Here is a recent biotech stock oddity: Seattle based Omeros Corp's stock fell almost in half (~$12 to ~$6) since mid Oct.
The company says is does not know why:

"SEATTLE, Nov. 13, 2012 /PRNewswire/ -- Omeros Corporation (OMER) has noted the fall in its share price over the last week of trading. Omeros is not aware of any reason that justifies this decrease..."

Anyone want to explain it?

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15. darwin on November 25, 2012 6:04 PM writes...

Hedge fund manager is synonymous with inside trader

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16. homer on November 26, 2012 3:22 PM writes...

sounds like Gilman was not only running AD trials, he was also enrolled.

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17. Anonymous on November 29, 2012 10:13 AM writes...

One can only wonder what part this played in the eventual destruction of Wyeth. Driving down the stock price by this kind of manipulation only made the Pfizer takeover easier.

Gilman is getting a pass from the feds, probably because of his age. Which story is sadder, this one or the UNC physics professor and the bikini model?

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18. Hap on November 29, 2012 4:31 PM writes...

The UNC professor was dumb and led by the wrong part of his body. Succumbing to the impulse requires a lower level of conscious evil and doesn't require him to repudiate the basis of his career. It's still wrong, and he gets to pay for it, but at least only he gets to pay for it.

Gilman, on the other hand, consciously betrayed the people he worked for and the code by which he worked (you don't accidentally spend two hours revealing clinical data to a money manager, let alone send him the slides for your talk) and a whole lot of people took it in the shorts because of his double dealing. If "do the crime, do the time" is justice for ten- and fifteen-year olds, there's no reason that he shouldn't be staying somewhere less pleasant for a few years.

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