Yesterday prosecutors arrested a former hedge fund portfolio manager for his involvement in what could be the most lucrative insider-trading scheme in U.S. history.

Mathew Martoma, a 38-year-old former trader at SAC Capital Advisors, is facing charges of one count of conspiracy to commit securities fraud and two counts of securities fraud for purportedly using confidential information about the bad results of clinical trials of a drug that Wyeth and Elan Corp. jointly developed to treat Alzheimer's disease. According to the charges, Martoma advised his employer to sell shares of drug companies Wyeth and Elan before news about the drug's prospects came out. Martoma's scheme helped his company net as much as $276 million in illegal profits.

Prosecutors say the scheme took place between October 2006 and July 2008 while Martoma worked for CR Intrinsic Investors. Martoma obtained the inside information from a doctor who was involved in the drug trial. The doctor, 80-year-old Sidney Gilman, is a neurology professor at the University of Michigan Medical School and has entered into a nonprosecution agreement with prosecutors.

“As alleged, by cultivating and corrupting a doctor with access to secret drug data, Mathew Martoma and his hedge fund benefited from what might be the most lucrative inside tip of all time,” U.S. Attorney Preet Bharara said in a statement.

Martoma could face five years in prison for the conspiracy charge and 20 years in prison for each of the two securities fraud charges against him.

For more information about the recent insider-trading charges, read Bloomberg Businessweek, NPR and the Wall Street Journal Law Blog.

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