Here we have yet another pharmaceutical insider trading case. Elan Corporation and Wyeth were jointly developing an Alzheimer’s drug.

Steven Martoma, a portfolio manager at a hedge fund, began purchasing shares in Elan and Wyeth and told the owner of the hedge fund, Steven Cohen, to do so as well. Martoma hired expert networking firms and doctors to provide him with information regarding the success of the drug’s clinical trials. Although many of these doctors had contractual obligations to keep this information secret, they told Martoma about “two major weaknesses in the data” that called into question the efficacy of the drug. Martoma called Cohen and told him to reduce his position in Elan and Wyeth in case the share price fell. Sure enough, a week later the results of the trials were released, and the share price of both companies substantially declined, earning Martoma and Cohen hefty sums and avoiding hundreds of millions in losses. However, Martoma was found out by the SEC and convicted of insider trading. He appealed his conviction, arguing that he did not have a “meaningfully close personal relationship” with the doctors that provided him insider information and that the doctors had not received any “objective, consequential … gain of a pecuniary or similarly valuable nature” in exchange for the information. Do these factors matter in an insider trading case? How did the court rule?