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University of Michigan neurologist Sid Gilman, Ann Arbor, 2005

The Corruption of Sid Gilman

How a top U-M doc lost his way

by Michael Betzold

Published in January, 2013

Turning eighty last year, neurologist Sid Gilman proudly displayed all the hallmarks of a distinguished career: An endowed chair at the U-M med school. National acclaim as an expert in Alzheimer's disease. The hospital's neurology service named after him. A CV with hundreds of published articles, noted lectures, and key committee posts.

Gilman had always been involved in important research. He'd worked with many big pharmaceutical companies--Pfizer, Merck, Johnson & Johnson--on drug trials, trying to find a cure for Alzheimer's. In the last decade, he also began consulting with Wall Street investors.

In 2002, Gilman began serving on the Gerson Lehrman Group's scientific advisory board; in 2005, he started working for investment firm Pequot Capital; and in 2007, he became a paid expert for Longitude Capital. In each case, he did exactly as he'd done with all his other consulting work over the years, as specified in the U-M faculty handbook: He "obtain[ed] approval from the appropriate University authority, usually the dean or the director of the academic unit, [for] outside employment ..."

His bosses at the U-M approved of Gilman's wielding his expertise on Wall Street. In fact, just like his consulting work for med tech businesses and drug firms, it was viewed as a positive.

"It's essential that the University of Michigan and other universities have a voice and interact in the business world through partnerships, collaborations, and other efforts," emails U-M Health System spokesperson Pete Barkey. "Such interaction allows business to tap into the knowledge of leading academicians and researchers, and it is part of the university's mission to engage in such an exchange of ideas."

Tap into Gilman's knowledge the business world certainly did. But not in the way the university intended.

Gilman's next outside work is scheduled to be testifying as a "cooperating witness" for the prosecution in the largest insider trading case ever brought by the federal government.

He's doing so to avoid spending the rest of his golden years in prison.


Soon after the charges were

...continued below...

announced in late November, the university announced that Gilman had retired. And with that, it went silent about its honored faculty member. Employees were ordered to refer media queries to Barkey.

Yet by all accounts, Gilman had enjoyed the respect of his colleagues. Local science writer Ken Garber, who interviewed Gilman earlier this year, calls the researcher "a gentleman" and emails that he was "saddened" to learn of the scandal. Gilman is described as being unfailingly helpful and approachable, always willing to give advice on a patient, a drug, a research quandary, a professional matter.

His pedigree was impeccable: undergrad, med school, and internship at UCLA; research training at the National Institutes of Health; residency at Boston City Hospital; taught at Harvard and Columbia. In 1977, he took over as chair of the neurology department and chief of the neurology service at the U-M, positions he held till 2004. He served on scores of professional societies, editorial boards, and advisory boards, plus scads of committees and volunteer service.

As of last year, Gilman was principal investigator in about $3 million of grant-funded research, with more than two dozen prior grant projects to his credit--all of these benefiting the university not only in prestige, but via the "indirect costs" that a percentage of all grants spin into the university's coffers.

Making well over $200,000 a year at the U-M and busy with so many duties, Gilman reported almost no paid outside consulting work until the turn of the century. But since then, he's moonlighted for no fewer than eight pharmaceutical companies and several other medical research and technology firms.

In 2002, he connected for the first time with Wall Street when he signed on as a $1,000-an-hour consultant with Gerson Lehrman, the nation's top "expert network." Expert networks arose in response to a rule adopted by the Securities and Exchange Commission in 2000 that made it explicitly illegal for corporate executives to give non-public information to outside parties.

Savvy investors immediately sought other ways to gain an edge in predicting a company's future prospects--and so whether its stock was likely to rise or fall. It's illegal to buy or sell stocks based on "inside" information that a company has not yet made public, but investors can do "aggressive market research."

Expert networks play matchmaker between hedge fund managers and knowledgeable parties in various fields. The networks pair up curious traders with reliable sources on the equivalent of blind dates and, with a wink and a nod, tell the parties to make sure to behave themselves.

The feds are trying to keep the networks and their sources honest with selective prosecution. In the high-profile conviction last year of Wall Street kingpin Raj Rajaratnam, expert network Primary Global Research played a key role. In several other recent cases, the feds say that hedge fund managers themselves paid consultants in expert networks directly for stock tips--and that the executives at the expert networks knew about such exchanges.

Gerson Lehrman, which has never been charged with wrongdoing, has strict guidelines specifying that its experts who are "participating in clinical trials may not discuss ... results not yet in the public domain." Yet after the firm paired him with CR Intrinsic portfolio manager Matthew Martoma in 2006, that's exactly what Gilman is alleged to have revealed.


In 2003, Gilman joined the "safety monitoring committee" for a trial of a new Alzheimer's drug, bapineuzumab, developed jointly by Wyeth and Ireland-based biomed company Elan. In drug trials, one group of researchers monitors the efficacy of the drug in alleviating symptoms. Another group, working at a distance with data obtained in patient examinations, monitors its safety--its effects on the health of the participants.

Hopes were high for the anti-amyloid antibody nicknamed "bapi." Both companies' stock prices rose after they issued a sketchy summary of the ongoing trials in June 2008. CR Intrinsic, an affiliate of the hedge fund SAC Capital Advisors, run by billionaire stock trader Steven A. Cohen, took an especially strong position, amassing some $700 million in Elan and Wyeth securities.

The companies announced that the full results of the Phase II trial would be released the following month--in a presentation by Dr. Sidney Gilman at the International Conference on Alzheimer's Disease. But Gilman proved to be the bearer of bad news: most patients' symptoms had not improved after getting bapi, and some got worse. Elan stock plunged 42 percent, Wyeth's 12 percent.

Yet CR Intrinsic reaped a huge profit. Just before the announcement the firm had suddenly reversed course, going from a very bullish and substantial "long position" (betting on Elan and Wyeth stock rising) to a notably bearish "short position" (betting on it falling). The hedge fund and associated investors made a huge killing.

And the SEC, which already had Cohen in its sights, took notice.


In 2007 and 2008, Elan paid Gilman $79,000 for his work as a safety monitor for the bapi trial. According to the SEC, he pocketed another $108,000 for "expert network" consultations with Martoma.

A few hundred thousand dollars isn't petty cash, but neither is it enough to transform the life of a prominent doctor at the close of a long career. Gilman's "conversion to Wall Street consultant was not readily apparent in his lifestyle in Michigan," the New York Times noted in a December article. "Public records show no second home, and no indication of financial distress."

But if not greed or need, what led Gilman to violate the trust placed in him? At a news conference announcing the charges, Preet Bharara, the U.S. attorney pursuing the expert networks, offered a theory: the alleged scheme, he said, revolved around "the cultivation and corruption of a renowned medical doctor."

Wayne State University law professor Peter Henning, who writes the "White Collar Watch" blog on the New York Times website, says Gilman may have joined Gerson Lehrman naively unaware of the ethical traps in expert networks, only to be blinded by the glare of Wall Street and flattered by the attention. He may have found the high-powered trader's world "new and pretty exciting ... People like Martoma are full of energy and expertise.

"I don't believe he thought through the consequences of his actions, what a black mark they would leave on his career," Henning says. "I mean, this is going to be what's in the first paragraph of his obituary."

Henning says Gilman probably had no idea of the huge amount of money that could be made off his tips to Martoma, and "at one point he looked at the man in the mirror and convinced himself he wasn't doing anything all that wrong"--and assented to the seduction.

The two men first met in New York in October 2006. Martoma, in his early thirties, and Gilman, in his seventies, became well acquainted over the next two years. According to the feds, "Gilman developed a personal relationship with Martoma, eventually coming to view Martoma as a friend and pupil."

Gerson Lehrman was watching closely as the two kept in contact, logging their phone calls, which often occurred within hours of safety monitoring committee meetings, but not listening in on them. The expert network knew of Gilman's position with Elan and Wyeth and sent him emails warning him not to discuss non-public information. But Gilman and Martoma both disguised the true nature of their discussions. Gilman at one point suggested Martoma tell Gerson Lehrman they were going to talk about Parkinson's disease treatments, not bapi, on their next scheduled phone call.

In fact, according to the feds, "beginning at least in 2007," Gilman was giving Martoma detailed accounts of the drug trial.

In the spring of 2008, Gilman informed Martoma that bapi appeared to be reasonably safe. But in early July, the picture changed, and Gilman told Martoma that patients getting bapi were having adverse side effects. On July 17, the feds allege, he gave Martoma an encrypted PowerPoint summary of the upcoming efficacy results--and the password needed to open it. Before Gilman announced those results to the world eight days later, CR Intrinsic and SAC Capital bailed out of Elan and Wyeth stock. By the feds' tally, those trades netted them $276 million in profits and "avoided losses."

The windfall made Martoma a star--briefly. He got a $9.38 million bonus in January 2009. But after failing to come up with any comparable revelations about other companies, Martoma was fired in 2010. With his earnings, he retired to a home in Florida with his wife and three young children.


If convicted of insider trading, Gilman could have faced fifteen to nineteen years in prison, based on federal sentencing guidelines.

Gilman hired attorney Michael Mukasey, the son of a U.S. attorney general and a high-powered corporate defender. Mukasey eventually got Gilman a "very good deal," says Henning--though it includes an admission of guilt, he's not subject to any criminal penalties.

Henning believes that the feds must have approached Gilman--and persuaded him to "flip" and squeal on his Wall Street pal--sometime before late 2011. That was when, according to the Wall Street Journal, federal agents showed up at Martoma's home.

Warning him he faced prison time, they offered leniency if he too would flip and cooperate in their investigation of his former boss, SAC's Cohen. Pressed, Martoma fainted on the spot. When he came to, he refused to cooperate. Martoma has pleaded not guilty; Cohen and SAC deny wrongdoing and have not been charged with any crime.

It was another year before the U-M, Wall Street, and the world found out about Gilman's breach of faith. Two days before Thanksgiving, Bharara announced the criminal charges against Martoma. In a civil case announced simultaneously, the Securities Exchange Commission sued CR Intrinsic, Martoma, and Gilman. In that case, Gilman agreed to forfeit $234,000--the amount he earned in the scheme, plus interest.

At the med school, a faculty committee was already working on an updated policy regarding outside consulting gigs, but the Gilman case has made that work more urgent: "We are seriously taking into account the events and actions involved in the Gilman case as we strive to make the process more robust and we work to minimize situations where ethical violations can occur," Barker emails.

Acknowledging that "actual and potential conflicts of interest are a normal part of all business," the U-M says "the key is how they are managed," adding "we have a rigorous set of policies--and a formal process--that ensure this management occurs for every employee."

When it comes to outside consulting, the U-M, like every major academic institution, largely trusts in the integrity of its employees. To do otherwise would require instituting cumbersome rules that faculty would perceive as an intrusion on their professional freedom. But Wayne State's Henning suggests that "it might be a good first step to bar researchers from being in expert networks while they are participating in clinical trials."

That suggestion comes too late to save Sid Gilman's reputation, but in disgrace, he may still do the world of law enforcement a bit of good. His last public appearance is scheduled to be to testify against Martoma in federal court in Manhattan.

Bharara's case against Martoma depends heavily on Gilman's testimony, and he is likely to face a fierce cross-examination. There, with the world watching, the full story of his relationship with his onetime "pupil" will be laid bare.

Martoma's attorneys may well try to turn the tables and paint Gilman as the seducer. But WSU's Henning believes that Gilman, at least initially, was the victim--and that he now understands the gravity of his betrayal. At some point, he says, the once-distinguished physician must have "had an epiphany"--and realized "Oh my God, what did I do?"     (end of article)

[Originally published in January, 2013.]


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