martoma, mathew sac capital complaint

7/29/2019 Martoma, Mathew SAC Capital Complaint

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approvea:ARLO DEVLIN-BROWN

Ass i s t a n t Un i t ed St a t es A t t o r n ey

Before: THE HON O RA BLE DEBRA FREE MAN

United States Magistrate Judg

@ gj r - r 5 = .Southern District of New York gX SEAL ED CO MP LAI NT

UNITED STATES OF AM ER ICA Violations of

1 8 U . S . C . 5 3 71 ; 1 5 U . S . C

78j(b) , 7 8f f ; 1 7 C . F . R240. 1 0 b - 5

MATHEW MARTOMA,

COUNTY OF O FF EN SE :

Defen d a n t . NEW YORK

SOUTHERN DIST RICT OF NEW YO RK, ss .

Matthew T. Callahan, being duly sworn, deposes and

says that he is a Sp eci al Ag ent with the Fe de ral Bu rea u of

Investigation ("FBI"), and charges as follows:

COUNT ONE

(Conspiracy to Commit Securities Fraud)

1. F rom i n o r ab ou t 20 06 th roug h in or ab out Jul y

29, 2008, in the S ou the rn Dis tric t of New York and el sew her e,

MATHEW MARTO MA, the de fen dant , and ot her s kno wn and un kn own ,

willfully and knowingly did combine, conspire, confederate and

agree together and with each other to commit offenses against

t he U ni t e d St a t e s , t o wi t , s ec u r i t i e s f r a u d , i n v i o l a t i on o f

Title 15, Uni ted St ate s Cod e, Secti ons 78j (b) and 7 8ff , and

Title 17, Code of Fe de ral Reg ula tio ns, Sec tion 240 .10b -5 .

2. It was a. part and object of the conspiracy that

MATHEW MARTO MA, the de fen dant , and ot hers know n and un kn own ,willfully and knowingly, directly and indirectly, by the use of

means and ins tru men tal ities of int ers tate com mer ce, and of the

mails, and of facilities of national securities exchanges, would

and did use and employ, in connection with the purchase and sale

of securities, manipulative and deceptive devices and

contrivances in vi ol at ion of Ti tle 17, Cod e o f F e d e r a l

Regulations, Section 240.10b-5 by: (a) employing devices,


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schemes and artif ices to defraud; (b) making untrue statements

of material fact and omitting to state material facts nec ess ary

in order to make t he st at eme nts made, in. the light of th e

circumstances under which they were made, not misleading; and

(c) engaging in acts, practices and courses o f bus i ne ss wh ic h

operated an d wo ul d ope r a t e as a fraud and deceit upon the

pur ch a se r a n d s e l l er , all in vio lat ion of Ti tle 15, Unit ed

States Code, Sec tion s 78j (b) and 78 ff , and Title 17, Cod e of

Federal Regul ati ons, Sect ion 24 0. 10b -5.

Overt Ac t s

3. In fu r th era nce of the conspiracy and to effect

its illegal obj ect , the fo llo wing over t acts , a mong o t h e r s , we r e

committed by MAT HEW MAR TOM A, the defenda nt, amon g ot he rs, in th e

Southern Dis tric t of New York and el sew her e:

a. On or ab ou t Oc to ber 16 , 2 006, MA RTOMA met i nManhattan, New Yor k with a do cto r inv olv ed in an Alzh eim er' s

disease drug trial (the "Drug Trial" ) being conducted by Elan

Corporation, PLC (" Elan.") and Wyeth,

b. On or ab ou t Oc to ber 9, 2007, MARTOMA

obtained confidential data relating to the Drug Trial during a

meeting arranged through a consulting business located in

Manhat t a n , Ne w Yo r k .

c . On o r a b o u t J u l y 1 7 , 2008, MARTOMA obtained

confidential final results of the Drug Tr ia l.

d . On o r abou t Ju l y 2 0 , 2 008 , MARTOMA spok e t o

t he owner ( t he "Hedge Fund Owner" ) of the af filia ted hedge fu nd s

(collectively, the " Hedge Fund" ) wh er e h e wa s em pl oy ed an d

recommended selling Elan and Wyeth securities before the drug

trial results were publicly announced.

e . On o r a b o u t J u l y 2 1 , 2008, MA RTOMA and t h e

Hedge Fund Owner instructed a Hedge Fund trader to begin selling

the Hedge Fund's entire position in Elan securities, which are

traded on the New Yor k Stock Exc hang e ("N YSE" ) in Man hat tan , NewYork .

(Title 18, Uni ted State s Co de , Se ct ion, 371.)


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COUNT TWO

(Securities Fraud Elan)

4. In or ab ou t Ju ly 20 08, in the So ut hern Di str ict

of New York and else whe re, MATHE W MARTOM A, t he d e f en d an t ,

willfully and knowingly, directly and i~directly, by the use of

means and ins tru men tal ities of int ers tate commerce, the mails

and the fac il ities of na ti onal sec uri ties exchanges , i n

c onne ct i o n wi t h t h e p u r c ha s e a n d sa l e o f s e cu r i t i e s , d i d u s e and

employ manipulative and deceptive devices a nd c o n t r i v an c e s , i n

violation of Ti tle 17, Code of Fe dera l Reg ul ati ons , Sect i on

240.10b-5, by (a) employing devices, schemes and artifices to

defraud; (b) making untrue statements of material facts and

omitting to state material facts necessary in order to make the

statements ma de, in the li ght of th e circumstances under whi ch

they were made, not misleading; and ( c ) enga g i ng i n ac t s ,

p rac t i c e s a n d c our s e s of business which operated and would

operate as a fraud and deceit upon persons, to wit, before Elan

and Wyeth publicly disclosed the final results of an Alzheimer' s

disease drug trial on July 29, 2008, MARTOMA obt ain ed mat eri al ,

nonpublic informat ion. about the results and, ba sed in who le or

in part on tha t inf orm ati on, cau sed the He dge Fund to se l l

common stock of Ela n and en ter into opt ions tra ns act ions

relating to Elan in advance of the public announcemen t an d i n

anticipation of a negative market reaction to the a nnoun ce me nt .

(Title 15, Uni ted St ates Code, Sec tion s 78j (b) & 78 ff ;

Title 17, Code of Fe de ral Reg ula tion s, Sect i o n 24 0 . 1 0b - 5 ; a nd

Title 18, Uni ted Sta tes Code , Sec tion 2. )

COUNT THREE

(Securities Fraud Wyeth)

5. In o r ab ou t Ju ly 20 08, in the So ut hern Dis tri ct

o f N e w Y o r k a n d e l se wh e r e , MATHEW MARTOMA , the de fen dan t,

willfully and knowingly, directly and indirectly, by the use of

means and instrumentalities of interstate commerce, the mails

and the fac ili ties of na ti onal sec urit ies exchanges, i n

connection with the purchase and sale of securities, did use and

employ manipulative and deceptive devices and co nt r i v an c es , i nviolation of Ti tle 17 , Cod e of Fed eral Reg ul ati ons , Sect i o n

240 .10b-5 , by (a ) emp l oy i ng dev i ces , schemes and ar ti fices to

defraud; (b) making untrue statements of materia l fac ts and

omitting to st ate ma te ria l facts nec ess ary in o rde r to mak e the

statements ma de, in th e li ght of th e circumstances under which

they were made, not misleading; and ( c ) enga g i ng i n ac t s ,


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practices and courses of business which operated and would

operate as a. fraud and deceit upon pe rs ons , to wit, be fore Elan

a nd Wyet h p u b l i c l y d i s c l o s e d t h e f i na l r e su l t s o f an Al zh ei m e r ' sdisease drug tr ial on Jul y 29 , 20 08, MART OMA ob ta ined mat eri al,

nonpublic info rma tion abou t the re su lts and based in wh ole or in

part on that in fo rma tion , caused the He dge Fun d to s el l co mmo n

stock of Wyeth in adv ance of the pu bl ic announcement and in.

anticipation of a ne ga tive mar ket re act ion to the an nou ncem ent .

(Title 15, Uni ted Sta tes Code , Secti ons 78 j(b ) a 78 ff ;

Title 17, Code of Fe de ral Reg ula tio ns, Section 240 .10b -5; and

Title 18, United Sta tes Cod e, Sec tion 2. )

6. I h av e b een a. Special Agen t with the Fe de ra l

Bureau of Inv es tig ation for app rox ima tely thr ee- and-a.- ha l f

years. I am currently assigned to a squad responsible for

investigating violations of the federal securities laws and

related offenses. I have been involved in investigations of

these offenses and in arresting individuals for participating in

s uch o f f en s e s .

7. Th e in f or ma tion con tai ned in thi s af fid avit is

based upon my personal knowledge, as well as information

obtained during this investigation, directly or indirectly, from

other sources of information and agents, including, but not

limited to: (a) witness interviews and sworn testimony; (b)

information rec eiv ed from the Se cur itie s 9 Ex cha nge Com mis sion

("SEC"); (c) telephone and financial records; (d) business

records of the Hedge Fund, Elan and other entities; (e) tradingrecords from banks and broker-dealers; (f) e-mai.ls and other

documents prep ared and re ce ived by MA THEW MAR TOMA , the

defendant, and others; and (g) publicly available records.

Because this affidavit is prepared for a limited purpose, I have

not included each and every fact I have learned in connection

with this investigation. Moreover, the investigation is

ongoing. Where conversations and events are referred to herein,

they are re late d in su bs tanc e and in pa rt . W her e da te s,

figures, and calculations are provided, they are approximate,

and subject to further revision.


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Relevant Enti ties and Ind ivid uals

8. A t a ll r e le van t tim es, the Hedg e Fund was a

privately held group of affiliated funds a nd a s s o c i a t e d f u n d

advisers which was founded, owned and. principally managed by the

Hedge Fund Own er, and which mai nta ined off ices in Co nne cti cut

and Manhattan, New York among oth er pla ces .

9. A t a ll r el evan t times , MATHEW MARTO MA, the

defendant, served as a portfolio manager for a division of the

Hedge Fund, where he specialized in the health care sector. In

addition to mak ing inv est ment dec isi ons in a por tf olio MAR TOMA

personally cont rol led, MART OMA, like othe r por tfo lio man age rs at

the Hedge Fund , rec omm ended in ves tment ideas to the He dge Fund

Owner for inclusion in other portfolios, including a portfolio

managed by the He dge Fun d Own er . MA RT OM A, lik e oth er He dge Fun d

portfolio managers, was compensated based on a. percentage of the

annual profit s in his ow n po rt foli o and the pro fit abi lity of

investments reco mmen ded by MA RTOM A to the He dge Fund Own er .

10. A t al l re le van t tim es, an ind ivi dual ref erre d to

as the Coope ratin g Wit ne ss, or CW, a co- con spir ator not named as

a defendant herein, was a Professor of Neurology at a leading

medical school and a ne ur olo gist at the ho spi tals af fil iate d

with the med ica l sc ho ol , and the di re ctor of an Al zh ei mer' s

disease research center.' The CWwas widely regarded as a.

leading expert in various neurological diseases, including

Alzheimer's dis ease . In ad d it ion to his ac ade mic wor k, the CW

served as a paid consultant to various other entities,including, as is relevant here, the following:

a.. A t a l l re le vant tim es, the CW wo rke d as a.

consultant to Elan and se rved as the ch air of the Saf et y

Monitoring Comm itte e ("S MC") in con nec tion with the phase II

clinical trial (the "Drug Trial" ) of an Alzheimer's disease drug

in development by El an and Wy eth known as AA B-0 01 or

The CW has ent ere d into a no n- pro secu tion agr eem ent wi th

the United Sta tes At tor ney 's Office for the Sout hern Di str ict of

New York. It i s my ju dg men t that the inf orm ation pro vide d by

the CW refe rred to in thi s Co mpl iant is cre dibl e bec aus e, among

other things, it is corroborated in part by other investigative

sources.


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bapineuzumab, and re f err ed to by some as "bapi . "

b. In a dd i ti on, at all re lev ant tim es, the CW

was a. consultant with a Na nh at tan-b ased exper t ne twork ing firm

(the "Expert Networking Firm" ) and engaged in paid consultation

with financial industry clients on matters within the CW 's

exper t i se .

11. A t all re le van t times, Ela n was a. corporation

headquartered in Du bl in, Ire land that ope rat ed as a

biopharmaceu tica l comp any . E la n.'s stock trade d on the Ir ish

S toc k E x c h a n g e , t h e L o n d on St o c k Ex c h a n g e a n d , t h ro ug h t h e

issuance of American Depository Receipts (or " ADRs" ) , on t h e New

York Stock Ex cha nge ("N YSE" ) under the ti ck er symbo l " ELN. " '

1 2. A t a l l r e l e v a n t t i me s , Wy e t h wa s a. De l a wa r e

corporation headquartered in New Jersey that operated a

biopharmaceutical company. Wyeth's common stock was r egi s t e r e dwith the SEC and l is ted on the New York Stock Ex ch ange und er the

t i ck e r sy mbo l " WY E. "

Clinical tri als of exp eri menta l drug trea tme nts are

conducted in a series of steps, called phases. Phase I trials

test a new drug or treatment in a small group of people to

eval ua t e wh e t h e r i t i s s a f e . Phase II trial s tes t the drug or

treatment in a somewhat larger group of people to see if it is

effective and to fu rt her eva luate saf ety . Phase III tri als tes t

the drug or treatment on large groups of people to confirm

effectiveness, monitor side effects, compare results to existing

treatment, and gather information regarding safe and effective

use.

An ADR is a se cu rity issued by a Uni ted St ate s bank t hat

gives its holder the right to obtain one or more shares of a

publicly traded foreign company. The stocks of most fo reign

companies that tr ade on Un ite d Sta tes s t o ck e x c h a n g e s a r e t r a d ed

a s A D Rs . F or c o n v e n i e n c e , this Complaint ref ers to tra nsa ction s

b y t h e H ed g e F u n d i n E l a n A DRs simply as transactions in Elan

s h ar es o r E l a n s t o c k .


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Overview Of The In si der Tra ding Sch eme '

1 3 . Be t we e n t h e s u m m e r o f 2 0 0 6 a n d mi d - J u l y 2 0 0 8 ,

NATHEW NARTO MA, the de fen dant , arr anged for app rox imat ely 42

pa.id consultations wit h the CW thr oug h the Exp ert Ne twor king

Firm. I n t h es e con sult ations, through an explo itation of

MARTOMA's per son al and fi nan cial rel atio nship with the CW ,

MARTOMA sou ght and. obtained from the CW ma te ri al , n onpubl i c

information (" Inside Information" ) about the Drug Trial,

including generally positive safety data which the CW was privy

to through his pa rt ici patio n in. the Safety Mon ito ring Comm itt ee

and which the CW was explicitly required to keep confidential by

Elan. B ase d in pa rt on th is po si tive Ins ide Inf orma tion ,

MARTOMA bou ght sh ares in Elan and Wyet h for hi s own. portfolio.

In addition, at NAR TON A'S rec omme nda tion , t he Hed ge Fund Ow ner

also bought sha res of Ela n and Wy eth fo r the Hedge Fun d.

14. O n or ab ou t Jun e 17 , 20 08, Elan and Wye th iss ued

a press release announcing what they characterized as

"encouraging top-line results" for the Drug Trial, while noting

t ha t t h e "detailed data pr ese nta tion" would not oc cur un til the

International Co nf erence on. Alzheimer's Dis ease (" ICAD") on. July

2 9 , 2 0 0 8 ( t h e "ICAD Present ation" ). Th e ma rke t rea cte d

positively to the press release, and, following the

announcement, the Hedge Fund continued to purchase shares of

Elan and Wyet h st ock , end ing the mo nth of Jun e 200 8 wi th

approximately $700 million worth of Elan and Wyeth stock.

15. I n o r ar ou nd lat e Jun e 2008 , Elan se lec ted the CWto present the det ai led Drug T ria l data to the pu bl ic a t t h e

ICAD conference . In or de r to en ab le the CW to ma ke th e

presentation, Elan prov ided th e CW fo r the firs t time wi th

still-secret data regarding bapineuzumab's efficacy i.e. the

drug's abil ity to tr eat Al zh eim er' s dise ase o n o r a b o u t J u l y

15 and July 16 , 20 08 . On or a b ou t Jul y 17 , 2 00 8 t h e CW p r o v i d e d

MATHEW MARTO MA, the de fen dan t, with the con fid ent ial data he ha d

just received from Elan. The confi dentia.l data showed th at

Alzheimer' s disease symptoms in patients taking the drug

consistently got worse over time, as opposed to stabilizing or

even improving. While a. particular subset of tria.l participantstaking the drug got worse at a somewhat slower rate than

This overview is based on my conversations with the CW and

other witnesses, my review of the business r ec or d s o f E l a n , t h e

Expert Netwo rkin g Fi rm, the He dge Fun d, and ot her sou rce s, as

described in more detail herein.


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patients taking a placebo, the data. raised significant questions

about whether the di ff erenc e was simply a matter of chance

rather than proo f tha t the drug wor ke d. In short, the data wa s

negative as to ba pi neu zuma b.

16. A fter re ce iving the nega tive conf idential data

from the CN, MAR TOM A, t hro ugh a re com mend ation to the He dge Fund

Owner, cause d the Hed ge Fun d to sel l it s entire approximately

10.5 million share position in Elan and approximately seven

million shares of Ny eth pr ior to the ICAD Pr es ent ati on . The

Hedge Fun d a l so "shorted" the stocks of Elan and Nye th ,

effectively betting that the price of the stocks woul d dec rea se

after the data was made pub lic at the ICAD Co nf ere nce . The day

after the neg ativ e dat a was announ ced at the ICA D Co nf ere nce ,

shares of Elan stock lost approximately 42'-.of their value and

shares of Wyeth st ock fell app roxi matel y 12 %. T he H e d g e F u n d ' s

combined profits and avoided losses through the sa le o f E l an and

Nyeth stock and re la ted opt ions act ivity bet ween July 21 , 2008and the publi c ann oun cemen t at the ICAD conf ere nce is estimated

to be approximately $276 million.

Obli ations To Mai ntai n The Con fid ent iali t

Of The Dru T ria l Da ta

17. I h av e re vie wed the cons ulting agree ment between

Elan and the CW th at cov ered the CW's pa rt icipa tion in the Dr ug

Trial. Th e ag re emen t prov ided that "any and all inf ormation

which Elan may di sc lose to the Con sul tant unde r thi s Agr eeme nt

will be considered confidential .. .

." In addition, theOperating Guidelines for the Safety Monitoring Committee for the

Drug Trial provided that Elan alone had responsibility to make:

any and all regulatory, private and or

public disclosures as it relates to any and

all data, safety, efficacy, or otherwise, as

it pertains to these clinical trials [and]

specifically to the AAB -001 prog ram, in pa rt

or in general. As such, strict

conf i de n t i a l i t y wi l l b e ma i nt a i ne d b y a l l

SMC members in acc orda nce with wri tte nagreements with [Elan] and at least until

the multi- center pub lica tion has been ma de

public or an SMC member obtains prior,

written permission from [Elan] to disclose

any confidential information.


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18. Based on my review of the Hedge Fund's business

records and my discussions with individuals with knowledge of

the Hedge Fund's policies, I know that MAT HEW MARTOMA , the

defendant, was forbidden by written Hedge Fund policy from

trading on the basis of Inside Information. For ex amp le , a

Hedge Fund doc ume nt ent itled "Code of Et hi cs" in ef fect durin g

MARTOMA's employment expressly prohibited employees from trading

on "material nonpublic information," which the document

descr ibed as "any information that has not been made ava i l ab l e

to the publ ic if the info rmat ion cou ld af fect the mar ket pric e

of specific Securities and a reas onable inve stor woul d att ach

importance to it in deci. ding whether to buy, sell or retain such

Secur i t i e s . " T he Cod e of Ethics cont ained a bo ld -fa ced

paragraph cautioning employees to be conscious of insider

t r ad in g r u l e s "when communicating with potential sources of

market info rmat ion such as . . . doctors conducting clinical

t r i a l s . . . . ." The Code of Et hic s fur ther war ned that in sid er

trading could lead to "criminal prosecution by the United States

At t o r n ey . "

19. Ba se d on my re vie w of He dge Fund and Exp ert

Networking Firm bu sin ess records, I have le arned tha t MA TH EW

MARTOMA, the de fen dant , was als o exp res sly adv ised by the Ex pe rt

Networking Fir m that it s experts were forbidden from disclosing

Inside Inform atio n dur ing the c onsu l t a t i on s . I n de ed , i n

multiple ins tanc es the Exp ert Ne two rking Firm adv ised MART OMA

expressly that the CW was involved in bapineuzumab trials and

was not per mi tted to di scu ss bap ine uzumab with MAR TOM A. For

example, in an e-mail dated June 25, 2008 from the Expe rtNetworking Firm to MAR TOMA con fi rming a co nsu lta tion tha t

M ARTOMA had re qu es ted of the CW , the Expert Net wor king Fir m

included a for m no ti ce s ta t i n g t ha t t h e c on su l t i ng ex p e r t " wi l l

not reveal any information that the [expertj has a duty t o keep

confidential, including material non-public information." The

e-mail furthe r pro vide d tha t exp ert s "par t i c i p at i n g i n c l i n i ca l

trials may not discuss the patient experience or trial results

not yet in the public domain." The confirmatory e-mail also

expressly stated that the CW was " u na bl e t o d i s c u s s "

bapineuzumab due to his involvement in clinical trials.


10/21

The CW's Acc ess To In side Infor mat ion Re ard ing The Sa fety Of

Ba ineuzumab Th ro ugh The Saf et Monitorin Committee

20. I h av e le ar ned from con ver sati ons with the CW an d

other witnesses, as well as from review of business r ec or ds f r om

Elan and othe r en tit ies, that Alz heim er's dis ease pat ient s

typically have abnormally high levels of beta-amyloid plaque

deposits within their brains. Bapineuzumab was developed as an

experimental Al zh eim er' s disease treatm ent intende d to re mo ve

these plaque deposits which, it was hoped, woul d i n t u r n

meaningfully slow or even potentially balt the progress o f t h e

disease. Th e phase II clinical trial of bapineuzumab was

designed to mea sur e the re sul ts on test s of cognition and

function of patients receiving varying doses of bap ineuzumab on

tbe one band and patients receiving only a placebo on the o the r

hand. Appr ox ima tely 234 pat ients parti cipated in tbe tri al .

The results of tbe ph ase II tri al we re eagerly anticipated by

t he s c i e nt i f i c com mu ni t y a s w e l l a s i nv e s t or s as animportant indicator of whether novel drugs of this type could

work.

21. I h av e le ar ned from con ver sati ons with the CW and

other witnesses, as well as from my review of business r e c o r d s

from Elan and ot her ent it ies , that tbe pha se II cl ini cal tri al

of bap in eu zumab was "double blind ed," mean ing that nei ther the

patients nor do ct ors who ad mi ni stered the te st knew whic h

patients were receiving a placebo and which were r ece i v i n g t be

actual drug. In order to provide for patient safety over the

course of the trial, however, Elan provided partially"unblinded" safety data to members of the Safety Monitoring

Committee. Spec if ica lly, the SMC memb ers received from El an

confidential periodic reports relating to patients who

exper i en ced " se r i ous adv er se eve n t s " (o r " S AEs" ) d u r i n g t h e

trial. T he d at a in th ese co nf iden tial repo rts ide nti fied

whether the pa ti ents who ex pe rie nced the SAEs wer e taking the

p lacebo o r t be d r ug and , for those tak ing the drug, the amou nt

of tbe dose . Th e CW and ot her mem ber s of the SMC wer e no t

provided with data regarding the efficacy of the drug, such as

how patients taking the drug were performing on the various

cognitive and life abilities tests.

10


11/21

NARTONA Obt ains Pos itiv e Inside Info rma tion Abou t The Sa fe t Of

Bapineuzumab Ac ui red B Th e C W T hr ou h SNC Me et ing s

2 2 . B e t we e n t h e s um m e r o f 2 0 0 6 a n d mi d - J u l y 2 0 0 8 ,

MATHEW MARTO MA, the de fen dant , arra nged app rox imat ely 42 pa id

consultations with th e CW thr ough the Exper t Net wor king Firm,

according to the Exper t Net work ing Fir m's bus ines s r eco rd s . Po r

example, on or ab out Au gust 21, 2006, Augu st 23, 2006, August

30, 2006 and Oct ober 3, 20 06, MARTONA req ues ted thro ugh the

Expert Networ king Fir m a. consultation wit h the CW on "AAB-001

[another name for ba pin euzum ab] for the tre atmen t of pa tie nts

with Alzheim er's Dis eas e." On o r ab ou t Oc to ber 16 , 2006,

MARTOMA arra nged thr ough the Exp ert Ne two rking Firm for an in

person visit with th e CW at the He dge Fu nd' s Man hat tan off ice

regarding "Alzheimer's Disease."

23. Based on my review of business records of Elan

and the Expert Ne two rking Firm, toge ther with phone records andelectronic cal endar ent ries , I have le ar ned that MAT HEW MAR TOMA ,

the defendant, arr anged th rough the Ex per t Net wor king Firm to

consult with the CW af ter the SMC me et ing s took pl ac e, a nd t h a t

in fact, such consultations occurred on a regular basis very

shortly after SNC me et ing s. The c h ar t be low sho ws the dat e and ,

in some cases, the approximate time of CW Expert Networking Firm

consultations with MAR TONA in rel atio n to SMC me et ing s a t w h i ch

the CW obtai ned from Elan co nfide ntial informa tion about the

safety of bapineuzumab:

CW Attends Elan SMC Me et ing MARTOMA-CW Consultation

November 21 , 2 0 0 6 November 2 2 , 20 0 6

F ebru a r y 8 , 2 00 7 F ebru a r y 9 , 2 00 7

Oct ob e r 9 , 2 0 0 7 , 1 0 : 0 0 a . m . Oct ob e r 9 , 2 0 0 7 , 4 : 0 0 p . m .

Marc h 1 8 , 2 0 0 8 , 1 1 : 0 0 a . m . Marc h 1 8 , 2 0 0 8 , 4 : 0 0 p . m .

J u l y 1 1 , 2 0 0 8 Ju ly 13 , 2 008

2 4. Add i t i o n a l l y , e - ma i l s r e f l ec t t ha t MATH EW

NARTONA, the de fen dant , arr anged with the CW to mov e a pl an ned

Expert Networ king Firm cons ult ation so that it wo uld occur aft er

a delayed SMC meeting had been rescheduled. Specifically, on or

about August 22, 20 07, MART OMA re que sted that the Exp er t

Networking Firm arrange a consultation with the CW regarding

"therapies for Al zhe imer 's Dis eas e." The n ex t da y, Aug ust 23 ,

2007, the CW sen t an e- mail to MART ONA rea ding "Mathew, The SNC

teleconference will be postponed until the following week.

Should we postpone our planned teleconference until a more

11


12/21

definite date has bee n es tab lish ed?" On o r ab ou t Au gus t 28 ,

2007, the CW fo rwa rded to NAR TONA an e-m ail from Ela n cont ain ing

potential dates for an SMC mee tin g wit h th e comment "Mat / For

your informa tion . I w il l in form you abou t the tim e tha t [the

Elan employee] sets for the conference call." On or about

September 5, 20 07, the CW f or war ded ano ther Elan e-m ail to

MARTONA rega rding SNC sch edu ling that pro pose d an in -pe rson

meeting of the SNC on Oc tob er 9, 20 07 . T he CW an d MA RT ONA th en

arranged to speak and did in fact speak on October 9, 2007, a

few hou s after the SNC meeting had finished.

25. B a se d on my co nv er sat ions with the CW and ot he r

witnesses, my review of the business records of Elan and the

Hedge Fund, and ot her sour ces , I have le arne d the foll owin g

about communi cati ons bet ween the CW and NAT HEW NAR TOMA , the

defendant, in re lat ion to the SNC me et ing s:

a.. Du rin g co ns ult ation s fol lowi.ng the SNC

meetings, the CW pr ov ided the con fid ent ial drug saf ety data he

had learned from El an. to NARTOMA. A m on g ot her th ing s, the CW

discussed with MAR TONA ch art s pro vide d by E lan to SNC me mb er s

detailing the in st ances of seri ous adv erse eff ect s, or "SAEs,"

in patients receiving various doses of bapineuzumab versus a

dose o f t he p l acebo .

b. D u ring co ns ult ations after the March 18 ,

2008 SNC meet ing , the CW read to NA RTO NA dat a Elan had pr ov ide d

to SMC member s re fl ect ing the num ber of pa ti ents in each of the

four dosage groups who were still participating in the study atthe time of the sixth and final administration of the drug.

Upon later learning that a math error in the Elan data. made it

appear that a large number of patients had dropped out of the

trial before rec eiv ing thi s fin al dos e, the CW wrote the

following in an Ap ri l 30 , 2008 e- mai l to MARTOMA that the CW

started with the no te " * * F o r Yo u r Ey e s On l y * * : "

Interestingly enough, I was just thinking

about you thi.s morning. The high dropout

rate in the Bap s tudy has cont inu ally

puzzled me, as in tracking back through thesafety data., I don't find much in the way of

reason for such a high rate. Oddly enough,

you and I have gone through this previously,

but recall that the num ber s [of pat ien ts

still rema ining in the tri al] in the 6t h


13/21

d os e w e r e : 3 7 , 4 2 , 4 5 , a n d 4 0 , a nd y e t t h e

b o tt o m l i n e r e a ds 1 26 i n t h e ma t e r i a l f r om

Elan. S im pl e ad di tion , which I tho ugh t we

h a d d o n e , y i e l d s 1 64 , n o t 1 2 6 !

These and other figures included in. this April 30, 2 00 8 e - m a i l

correspond exactly math errors and all to a slide in a

confidential Pow erP oint pre sen tation made to the SMC me et ing on

o r a b o u t Ma r c h 1 8 , 2 0 0 8 .

c. Duri n g co ns ulta tions with MART OMA, the CW

also discu ssed his view that the SMC da ta showed t ha t

bapineuzumab was reasonably safe for a drug of its kind, wi th

side effects br oad ly con sis tent with exp ect ati on . The CW

further told NA RT OMA th at the fa ct tha t a. particular sid e e f f e c t

was observed only in patients taking the drug (and not the

placebo), and that the side effect occu rred mor e fr equently in.

patients taking higher doses of the drug, indicated that the

drug was likely attacking the beta-amyloid plaque just as the CW

had hoped. While by no means definitive, t h i s a p p a r e n t " d o s e

response" relationship was a positive sign that the drug co ul d

be effectiv e in, treating Alzhe ime r's disea se .

The Hed e Fun d Ac cum ula tes A Su bs tan tial Lon Position In El an

And W eth Stock Fol lowin NA R TO NA 's Rec ommend ation

26. From my review of trading and position records

p r ov i d e d b y t h e SEC a n d t h e He d g e F un d , I am fami liar wit h the

Hedge Fund's investments in the securities of Elan and Wy et h,the joint partners in bapineuzumab's development. Beginnin g i n

approximately late 2007, and continuing through approximately on

or about July 18 , 20 08, the Hed ge F und ama ssed a la rge po sit ion

in Elan and Wyeth securities. According to reports filed with

the SEC, the He dge Fu nd hel d app rox imat ely $32 8 mi llio n of Elan

equity securities and approximately $373 million of Wyeth equity

securities as of June 30 , 20 08 .

27. Fro m my re vi ew of He dge Fund bu si ness rec ord s and

interviews and sworn statements of individuals associated with

the Hedge Fund , I hav e lea rned that th e He dge Fun d's longposition on Elan and Wyeth increased following the

recommendation of MAT HEW MA RTO MA, the de fen dan t. I n o r a b o u t

late 2007 or ea rly 2008 , NAR TON A, who was buying Elan and Wyeth

securities for the po rt fol io he co ntr oll ed, recommended tha t the

Hedge Fund Own er acqu ire addi tiona l Elan and Wyeth share s for


14/21

the Hedge Fund . MA RT OM A to ld the He dge Fund Own er, in sub sta nce

and among other th ings, that he be li eved tha t the Drug Tr ia.l

would go well. Following this, the Hedge Fund Owner acquired

significant Elan and Wyeth holdings in portfolios cont r o l l ed b y

t h e H e d g e F u n d Ow n e r .

28. F ro m my re vi ew of He dge Fund bu si nes s records and

interviews and sworn testimony of individuals associated with

the Hedge Fun d, I hav e le arned tha t the recommendation of MA TH EW

MARTOK>, the def end ant , to the He dge Fund Own er to ac qui re a.

substantia.l Elan and Wyeth position was vocally opposed by

several others at the He dge Fund who arg ued to MA RT OMA and the

Hedge Fund Owne r tha t un cer tai nty surrou nding the Drug Tria l

results made such an inv es tment far too ri sky . The He dg e Fun d

Owner consi stently bac ked MAR TOMA aga inst the nay say ers , c i t i ng

among othe r thing s MARTOMA's con vi ction. in his recommendation.

For example, in an in sta nt mes sage on or a bou t Ma rch 28 , 2008

with one of He dge Fun d he alth ca re exper ts who op po sed th e l ongposition, the Hed ge Fund Own er wro te that MAR TQMA ant ici pate d

positive news fro m the Drug Tr ial and tha t MA RTOMA wa.s the one

"closest" to it .

Elan And W eth Is sue A Pr ess Re le ase Ann ouncin Hi h - L e v e l

Summar O f D ru g Tr ial Fi ndin s, But Not Deta iled Resu lts

29. On o r ab ou t Jun e 17 , 20 08, bef ore the stock

market opened, Elan and Wyeth issued a press r e l e as e (t h e "June

17 Press Re l ea se" ) anno unc ing t he "top line" results of th e

bapineuzumab tri al but not the ac tua l tri al data its elf . Thepress release stated that while "the study did not att ai n

statistical significance" in terms of sho win g a gene r a l

difference between patients taking the drug compared to patients

taking the placebo, the study did show "statistically

significant and clinically meaningful benefits" in patients who

did not have a pa rt icu lar gen e, ApoE 4 (th e " Non-Ca r r i e r s " ) . Th e

J u ne 1 7 Pr e s s Re l e a s e d i d n o t s a y , h o wev e r , whether t he Non

Carriers who were taking bapineuzumab actually improved, simply

stopped getting worse, or merely continued to get worse but just

at a slower rate t han pa ti ents not t ak ing the dru g. Nor d i d t h e

June 17 Press Release provide detailed data enabling investorsto assess whet her the ben efi t to the Non- Car riers was lik ely due

to the drug working as opposed to other factors, including mere

chance. In s t ea d, the Jun e 17 Pr ess Re lea se a nn ou n ce d t h a t t h e

companies would make a. "Detailed Data. Presentation At ICAD Ju ly

2 9, 2 0 08 " (as p r ev i ou s l y d ef i n e d , the "ICAD Presentation" ).

14


15/21

30. T r ad ing rec ords reflect that the marke t reac ted

positively to the Jun e 17 Pr ess Rel eas e. El an h a d b e e n t r a d i n g

at approximately $27.11 per share immediately prior to the

issuance of the June 17 Pr ess Rel ease , and rose to appr ox ima tely

$30 per share immediately after the a nnou nc em en t . Be t we e n J u n e

19, 2008 and the ICA D Pr es enta tion , s ha re s o f E l a n t r a d e d

between approximately $31.90 and g36.82 per share. The Hedge

Fund, at the re com men dat ion of NAT HEW MAR TOM A, t he d e f en d an t ,

also continued to maintain a. large position in Elan and. Wyeth

following the Jun e 17 , 200 8 Pre ss Rel ease . O n or a b ou t Jun e 30 ,

2008, MARTONA e- ma iled the He dge Fund Own er "I think the st oc k

[Elan] breaks $40 on th e ICAD da ta

31. A l th ough the mar ket reac ted pos itively to the

June 17 Press Re lea se, cer tain mar ket ana lyst repo rt s, which I

have reviewed , sta ted in sub sta nce that the "top line" results

lacked detail and t ha t, in the words of one analys t , t h e"[p] resentation of a mo re co mp lete da ta se t at IC AD at th e end

of July will be a much anticipated event as investors should

gain much greater insight into the drug's s afet y a n d ef f i c ac y . "

As another ana lyst put it , "clearly many questions remain and

the ICAD mee ting on the 29 o f Ju l y sh ou ld al low inv est ors to

fully drill into the dat a in mor e deta il ." A third analyst

wrote that the June 17 Pr ess Re lease added "l it tle to what we

already knew on bapineuzumab" and that "[a] s a. consequence, we

await full Phase 2 r esu lts at ICA D next mo nth to see if a

disease modifying trend can be demonstrated.

MARTONA Obta ins Ne at ive Ins ider Inf orm ation Sho rtl Before The

Detailed Dru T ri a l Re su lts Are Pub li cl Announced

32. Ba se d on in te rvi ews with the CW and the re view of

contemporaneous business records from Elan and other sources, I

have learned that , at the tim e of the June 17 Pr es s Re le ase , the

CW remained "blinded" to data relating to bapineuzumab's

efficacy and was privy only to sa.fety data that had been

previously presented to the SNC. However, a.s set forth below,

i n m i d - J u l y 2 00 8 t h e CW w as g i v en a c c e s s t o t h e d e t a i l e d t r i a l

data from Elan and pro vi ded it to NATH EW MAR TOM A, t he d e f en d an t .

3 3. Un l es s o t h e r wi s e s p e c i f i c a l l y s t a.t ed , I ha v e

learned the fol low ing ba sed on my in te rvi ews with the CW an d

other witnesses, my review of business records o f E l a n , t h e

Hedge Fund, the Exp ert Ne two rking Firm and ot her ent iti es , and


16/21

o t he r so u r c e s :

a.. I n la te Ju ne 20 08, a rep re sen tative of Ela n

asked the CW to pr es ent the de ta ile d re sults of the ph ase II

bapineuzumab tr ial at the ICAD Pr ese nta tion . The n , on or ab ou t

J un e 2 5 , 2 0 0 8 a t a p p r ox i ma t e l y 11 : 0 2 a . m . , t h e CW s e n t a n e - ma i l

to MATHEW MAR TONA , the de fen dant , with the sub jec t "Some new s"

and stating "Please set up a. [Expert Networking Firm]

conversation re MS ." Th e CW su gg es ted the sub jec t of NS

{multiple sclerosis) even though the " n ews " h e wa s r e f e r r i n g t o

was that he had be en asked to re port on the re su lts at ICAD .

This was don e in or der to av oid ref erences in the Ex pe rt

Networking Firm records to anything relating to the Drug Trial.

At approxima tely 11 :06 a..m., MARTOMA e-m aile d his sec reta ry,

"Can u set up an ot her [Ex pert Net wor king Firm] c ons ult on MS

therapies with [the CW]" and then, approximately one minute

later, NARTONA re pl ied to the CW' s e-mai l "Do ne, can you t alk

n ow'?" A t a p p r o x i ma t e l y 2 : 0 8 p . m . , MARTONA and th e CW sp oke by

phone for app rox ima tely 20 mi nut es, and the CW to ld MAR TONA that

the CW had bee n s el ecte d to mak e the ICAD Pres ent ation

announcing the Dru g Tr ial re sul ts .

b. On or about Ju ly 7, 20 08 , the CW cr ea ted an

entry in his electronic calendar for an appointment on July 13,

2008 from 5: 00 p. m. to 6 :00 p.m . readin g "Mat Ma rtoma will c al l

me re: SAEs in bap" [serious adverse effects in bapineuzumab].

The call was sch edu led so the CW cou ld br ief MAT HEW NARTOMA , the

defendant, on the ful l sa fet y dat a for the tr ia l, which was t o

be discussed at the fina l SMC mee ting on o r abou t Fr iday , July

11, 2008. How e v er , to av oid cr eat ing a re cor d tha t they wou ld

be discussing Ins ide Inf orm ation , the CW and MART OMA arr anged to

disguise the purpose of the consultation with the Expert

Networking Firm. Specifically, on or about Sunday, July 13,

2008, the CW em ai led NART ONA "H i Na t, For tod ay 's cal l at 5 pm

EDT, please: 1. Obtain [Expert Networking Firm] consent for us

to speak, perhaps on Parkinson.'s disease and Rasagiline [a, drug

to treat Parkinson's disease] . . . ." Expert Networ king firm

records ref lec t tha t NART OMA made a re qu est tha t sam e day to

speak to the CW "regarding Rasagiline for Parkinson's Disease."

At approximat ely 5:3 3 p. m., NARTONA ca lle d the CW from his homeand spoke to the CW for over one-and-a-half hours. During the

conversation, the CW des cri bed in det ail the fin al safe ty data

presented to the SMC , wh ich the CW cont inue d to i nt erp ret as

largely pos iti ve . Wh i le th e ca ll was in pr og re ss, both the CW

and NARTONA mad e en tr ies in th eir el ect ronic cal enda rs

16


17/21

s ched ul i n g a f u r t h e r c a l l on J u l y 1 7 , 2 00 8 .

c. On or about Ju ly 15 , 20 08, Ela n fle w the CW

by private jet to San Francisco and, over the course of that day

and the next, Ela n and Wye th "u nblinded" the CW to th e fu ll

results of the tr ia l. Th is wa s th e fi rst tim e that the CW ha d

seen data. on the eff icacy of the drug rat her tha n si mply saf ety

data. Th e efficacy data was negative, particularly in

comparison with mar ket exp ect ations foll owing the June 17 Pr es s

Release. F ir st , the dat a re fle cted that the sym ptom s of

Alzheimer's disease in patients taking the drug including the

Non-Car r i er s continued to get marke dly wors e ove r the 18 -mon thdrug trial, rather than getting better or stabilizing. Second,

although Non -Ca rrier s tak ing the drug compl eted the t ria l wit h

somewhat bet ter res ults than Non -Ca rriers taking the pl ace bo, it

was not cle ar fro m the dat a wh et her thi s chang e was c au sed by

the drug as opposed to other factors, including chance, given

the small size of the tr ia l . Fo r e x am ple , the No n- Car rier s

taking the pl aceb o suff ered a sharp and appa ren tly ran dom

decline in hea lth tow ards the end of tr ial , whic h had the effe ct

of making the No n- Car rier s taking the drug loo k tha t mu ch

healthier. For ano ther thi ng, and con trary to the CW 's

e xpec ta t i o n s , t h e r e was n o s i g n i n t h e da t a t h a t t h e s i ze o f t h e

dose of bapineuzumab a. patient received had anything to do with

how well or poorly a patient performed on the tests of cognition

or f u n c t i on .

d. Du r i n g th e un bl ind ing on Jul y 15 and Ju ly

16, the CW wor ked wit h Elan pe rso nnel to cre ate dra ft Power Poin tslides that the CW in te nded to pr es ent dur ing the ICA D

Presentation . On or ab ou t Ju ly 17 , 20 08, af ter return ing hom e

from San Fran cisco , the CW re ce ived an e- mail from Elan with the

subject "Con fide ntia l, Do Not Dist ribu te," and wh ich atta ched a

24-page document representing "the updated ICAD podium

presentation slides, reflecting the combined edits of [the CW1

and the Elan working group." Later that day, at approximately

4 :1 5 p . m. , MARTOMA ca lle d the CW at his of fi ce, and spoke to him

for approximately one hour and 45 minutes. During the call,

which was not se t up th ro ugh or re por ted to the Ex pe rt

Networking Firm , the CW de sc ribe d and di scu ssed in de tai l theDrug Trial results, including the data on the 24-page

presentation that the CW ha d rec eive d ear lier that da y .

Additionally, the CW sen t MA RTOM A the 24 -page dr aft prese ntat ion

and. provided MAR TOMA wi th the pa ss word for the docu men t so that

he would be able to open. it.


18/21

MARTONA Cause s The Hedg e Fun d To Se ll Elan And Wyeth St ock In

Advance Of The ICAD An no uncem ent Ba sed On The Ne a ti v e I n s i de

Information Provide d B The CW

34. Unless otherwise specifically stated, based on my

interviews with and/or review of transcripts of testimony of

current and former Hedge Fund employees, Hedge Fund bu s i n es s

r e co r d s , SE C d o c u m e nt s , p h o ne r e c or d s , and publicly available

information, among other sources, I have learned. the following

about Hedge Fund tr ade s cau sed by MAT HEW NAR TO MA , t he d e f en d a n t ,

and others at the Hedg e Fun d, after MARTQMA o bt aine d the

negative Drug Tr ial re su lts from the CW pr ior to the IC AD

Prese n t a t i o n :

a . On o r abou t Su nd ay , Ju l y 20 , 2008 a t

approximately 8: 52 a. m., NARTONA e-m ail ed the Hed ge Fund Own er

"Is there a good time to catch up with you this morning? I t ' s

important." The Hedge Fund Owner replied approximately one hour

later with his cell phone number, and MARTONA and t he Hedg e Fun d

Owner subsequen t l y spo ke by phon e at approxi mately 9: 43 a..m. for

approximately 20 minutes. A s o f J u l y 2 0 , 2 0 0 8 , t h e H e dg e F u n d

owned approximately 10.5 million shares o f E l an s t o ck .

b. On or ab ou t Mo nd ay, July 21 , 2008, t h e Hedge

Fund Owner and MART OMA inst ructed the Hedge Fund Ow ne r' s senior

t r a de r (t h e "Senior Trader" ) to begin selling the Elan position,

and to do so in a way so as to not alert anyone e lse , i ns i de o r

outside of the He dge Fun d . At the end of that Mo nd ay, the

Senior Trader e- ma iled NARTOMA that he had so ld 1. 5 mi lli on

shares of Elan t hat day , and that "ob vio usly no one kn ows excep t

you me and [the Hedge Fund Owner] ."

c . On o r a b o u t Tu e s d a y , J u l y 2 2 , 2 0 0 8 , at

approximately 1:22 p.m., the Hedge Fund Owner s en t a n i n s t a n t

message to MAR TO MA, re fer ring to sales of Ela n st ock, and

stating "we are done on 2.3 [million] today" for a " t o t a l 3 . 8

[mil l i on ] i n 2 day s . " MARTOMA repl ied "my se nse is to day -thur s

are best days / so if possible to do more, would do so . "

Following the instant message, the Hedge Fund sol d ad dit iona lElan stock, bringing the total shares sold to approximately 4.5

million by the en d of th e da y .

d . On o r a b o u t Su n d a y , J u l y 2 7 , 2 008 , t h e

Senior Trader e- ma iled the Hed ge Fund Owner the results of the


19/21

week's a ct i v i t y :

We exec u t e d a s a l e o f ov e r 1 0 . 5 mi l l i o n

ELN for [fou r internal Hedge Fund

account names] at an avg price of

3 4 . 21 . Th i s wa s ex e c u t e d q u i e t l y a nd

effectively over a. 4 day per iod through

algos and darkpools and booked into two

firm accounts that have very limited

viewing access. Thi s process clearly

stopped leakage of info from either in

[orj outside the firm and in my

viewpoint clearly saved us some

s l i p p a g e .

e . On o r abou t Mo nday , Ju l y 28 , 20 08 and

Tuesday, July 29 , 20 08, the Hedge Fund , hav ing sold the ent i r e

Elan position, shorted approximately 4.5 million. additional

s hare s o f E l a n s t o c k .

f. In add i ti on to the Elan tran sactio ns,

between July 21, 200 8 and the ICA D Pr ese nta tion , t h e H e d g e Fu n d

sold the entire approximately seven million shares o f W ye th

stock in por tfo lios over wh ich MAR TOMA an d/o r the Hed ge Fund

Owner had tra ding aut hor ity an d sh or ted Wye th sto ck by an

additional approximately 3.25 million shares.

35. B a sed on inf orm ation provi ded by the SE C, I have

learned that during the seven trading days preceding the July2 9, 2 0 0 8 I CAD a n n o u n c e m e n t , the Hedge Fund's trading in Elan

stock (ADRs) represented over 20-. of the reported trading volume

in the security and the Hedge Fund's trading in Wyeth stock

represented ove r 11'; of the rep orted tr ading vo lum e in th at

secur i t y .

The Hedge Fund did not s ell app rox imat ely 40 0, 000 shares of

Wyeth in a portfolio maintained by a separate portfolio manager.

Additionally, the Hedge Fund did not s eek to un win d a der iva tive

swap contract between the Hedge Fund and various financial

institutions rel ating to the pe rf orm anc e of Wyeth shares. (This

position, in any event, remained pro fitable even af ter the ICAD

Present at i on . )


20/21

The Hed e Fu nd Pr of its From Tr ad in I n Ad va nc e Of The

Announcement Of The Ne at ive Dr u T ri a l D a t a

3 6 . On o r ab ou t Ju l y 2 9 , 2 008 , shortly after the

stock market closed, and on a schedule previously announced by

Elan and Wye th, the CW de sc ribe d the det aile d res ult s o f t h e

Drug Trial dur ing the 1CAD Pr ese nta tion to wha t one in ves tmen t

ana lys t r epor t ed as "a very full room" including "the who's who

of the investor / analyst community." Dur in g t he I CAD

Presentation, the CW, us ed a mo re po li shed vers ion of the ve ry

PowerPoint pre se nta tion he had pr ev iou sly sent to MA THE W

MARTOMA, the de fe nda nt .

37. Th e da ta ann ounced at the ICAD Pres entation was

viewed by the market as negative, and the sha r es o f E l an and

Wyeth fell as a re su lt . On or ab ou t Jul y 30 , 2008 , t h e day

after the ICAD P re sen tat ion, Elan cl osed at $1 9. 63 per share ,

approximately 42'-. lower than its cl ose the day be for e . Wyethclosed on July 30, 2008 at approximately $39.74 per share,

approximately 12'-. lower than its closing price the prior day.

Mul t i p l e i n v e s t me nt an a l y s t s c i t ed t h e f a c t t h a t , as one ana l y s t

put it "patients didn't improve on. the drug" (and simply got

worse somewhat more slowly) as a bad sign for the drug's

prospects. Multiple analysts pointed to weaknesses in the

detailed data tha t su gg este d that even the li mi ted ben efi ts seen

in a subset of pa ti ent s (the Non -Ca rrie rs) coul d in stead hav e

b een caused by chan ce .

38. B a se d on He dge Fund trad ing data and inform ationp r o v i d e d b y t h e SEC , I have learned that the Hed ge Fun d ea rned

profits and avoided losses of what is currently es tim ated to be

$276 million, as detailed on the chart below, t h rough sa l es o f

Elan and Wyeth stock, short sales, and profitable op t i ons

activity bet ween Jul y 21 , 200 8 and the ICAD Pr es ent ati on :

These c a l cu l at i o n s ar e es t i ma t e s on ly an d ar e base d on a n.

analysis of presently available information, a nd a r e t h e r e f o r esubject to revision. The calculation of losses avo ided i s based

on an average of the price of Elan and Wyeth stock between July

21, 2008 and the ICAD Pre sen tation in com par ison to the c l o s i n g

price of Ela n and Wy et h st ock on July 30 , 2 008 , t h e d a y a f t e r

the ICAD Present atio n.

20


21/21

Elan Wyeth To'tal

L os se s A v o i d e d $ 154 . 2 $40 m i l l i o n $194.. 2Thr ough Pr e mi l l i on

I CAD S a l e sGains Fr om 859.2 $16 mi l l i on $ 76.2m i l l i o nShor t Sa l es mi l l i on

Profitable $6. 6 mi l l i on $6.6 mi l l i onOpt ion T r a de s

Tota l $220 m i l l i o n $56 mi l l i on $ 276 m i l l i o n

3 9 . I n o r a r o u n d e a r l y J a n u a r y 2 0 0 9 , t h e He d g e F un d

assessed the bonus to be pai d to NA RT ONA for the pr ec eding year .

MARTONA was paid a to tal of app rox imat ely $9 ,38 0,435 by the

Hedge Fund, which in la rge par t was at tri buta ble to the res ult s

of the Hedge Fun d's tra ding in Elan and Wye th . By con tr as t,

MARTOMA received no bo nus for his work- in 2009 (a year in wh ic h

his portfolio lost mon ey) . On o r ab ou t May 5, 20 10, a Hed ge

Fund employee e-ma iled a. recommendation tha t NARTOMA be fi re d

after continu ing to los e mo ney that yea r, statin g in the e-ma il

that MARTOMA app ear ed to be a "one trick pony with El an ."

MARTOMA's empl oymen t wit h the Hed ge Fund was su bse que ntly

terminated.

WHEREFORE, depo nent pray s that an ar res t war rant be

issued for NAT HEW MART ONA , the defendant, and that he be

imprisoned or ba.iled, a.s the case may be.

MATTHEW CALLAHAN

SPECIAL AGENT

FEDERAL BU R EAU O F INV EST IGAT ION

Sworn to before me th is

1 9 d ay o f Nov emb er 2 012

Hon . Deb r a F r e ema n .

United States Mag ist rate Jud ge

martoma, mathew sac capital complaint

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