Speaking in front of a packed convention hall in Chicago, a top Alzheimer’s researcher, Sidney Gilman, presented the results of a drug trial that had the potential to change the fate of elderly patients everywhere.
But as he worked through the slides, it became clear to the audience on that day in July 2008 that the drug was not delivering and that its makers, Elan and Wyeth, could lose out on blockbuster profits. Along with other Wall Street analysts in the front rows, David Moskowitz zapped messages to clients to dump shares of the companies.
“I can remember gasping" at the results, Moskowitz said.
Little did anyone in the room know that 12 days earlier, Gilman had emailed a draft of the presentation to a trader at an affiliate of one of the nation’s most prominent hedge funds, according to prosecutors, allowing the fund, SAC Capital, and its affiliate to sell over $700 million of Elan and Wyeth stock before Gilman’s public talk.
Last month, the trader was arrested on insider trading charges after Gilman agreed to cooperate with prosecutors to avoid charges.
While he appeared a grandfatherly academic, Gilman, 80, was living a parallel life, one in which he regularly advised a wide network of Wall Street traders through a professional matchmaking system. Those relationships afforded him payments of $100,000 or more a year — on top of his $258,000 pay from the University of Michigan — and travels with limousines, luxury hotels and private jets.
The riddle for Gilman’s longtime friends and colleagues is why a nationally respected neurologist was pulled into the high-rolling life of a consultant to financiers and how he, by his own admission, crossed the line into criminal behavior.
“My first reaction was, ‘That can’t possibly be right,’" said Dawn Kleindorfer, a former student of Gilman’s at Michigan.
What is clear is that Gilman made a sharp shift in his late 60s, from a life dedicated to academic research to one in which he accumulated a growing list of financial firms willing to pay him $1,000 an hour for his medical expertise, while he was overseeing drug trials for various pharmaceutical makers.
Among the firms he was advising was another hedge fund that was also buying and selling Wyeth and Elan stock, though the authorities have given no indication that they have questioned those trades.
His conversion to Wall Street consultant was not readily apparent in his lifestyle in Michigan and was a well-kept secret from colleagues. Public records show no second home, and no indication of financial distress. Nevertheless, he was willing to share a glimpse of his lifestyle with a 17-year-old student whom he sat next to on a flight from New York to Michigan a few months ago, telling her how his Alzheimer’s research allowed him to enjoy fine hotels in New York and limousine rides to the airport.
“I wouldn’t say he was egotistical because he didn’t come across as obnoxious, but he definitely mentioned the kind of lifestyle that he had," said the student, Anya Parampil, who had been upgraded to first class.
Gilman’s role in the case involving SAC Capital has largely been overshadowed by the possibility that investigators may be narrowing in on the firm’s billionaire founder, Steven Cohen. Cohen and his firm have not been accused of any wrongdoing in acting on the insider information.
Colleagues now say Gilman’s story is a reminder of the corrupting influence of money. The University of Michigan, where he was a professor for decades, has erased any trace of him on its websites, and is now reviewing its consulting policy for employees, a spokesman said.
The case also turns the spotlight back onto the finance world’s expert networks, which match sources in academia and at publicly traded companies — like Gilman — with traders at hedge funds and financial firms.
The networks have been a central target of prosecutors in the sprawling insider trading investigations that have resulted in dozens of convictions in recent years.
Some networks have closed, and now many are shifting their focus outside the financial world, hoping to make up lost revenue by consulting for corporate America.
Days after the charges were filed, Gilman retired and has gone into seclusion at his home on a wooded lot overlooking the Huron River on the outskirts of Ann Arbor, which is listed in public records as worth $400,000. He declined to open the door to a reporter last week, directing questions to his lawyer.
“I can’t discuss it," he said. “I’m sorry."
In a one-paragraph statement, his lawyer, Marc Mukasey, said: “Dr. Gilman’s accomplishments in medicine, research and education speak for themselves. He moved the ball way down the field in helping to find a cure for those who suffer from Alzheimer’s disease."
The University of Michigan has severed its ties to Gilman and a spokesman, Pete Barkey, said the case was “caused by a faculty member’s unethical and illegal behavior during the conduct of external activities."
Gilman graduated with top honors from the University of California, Los Angeles, trained at Harvard Medical School and moved into a life of teaching. He married Carol Barbour, a psychoanalyst, in 1984. People who know him almost invariably mention his fatherly demeanor, and his gift for teaching.
Dr. Brett Kissela, a resident under Gilman in the late 1990s, remembered him as “a little bit formal" but warm and generous. When faculty members had to sign up for an undesirable task, Gilman would start by signing up himself, Kissela remembered.
Gilman helped turn Michigan into a national center for research in dementia, and eventually the university’s neurology lecture series was named after him.
He was well-known for shaping trials for Alzheimer’s drugs and served on Food and Drug Administration drug advisory panels. Dr. Timothy Greenamyre, who has known Gilman for about 30 years, remembered turning to him for help with ethical issues after succeeding him at a top industry journal, Neurobiology of Disease.
“He always gave me rock-solid advice and counseled me to maintain transparency so as to avoid even the appearance of a conflict of interest," Greenamyre said.
Shift to consulting
For most of his career, almost the only work Gilman did outside Michigan was in national advisory positions and academic journals that provided almost no compensation, according to his 43-page resume. But in 2000, as he scaled back his academic and editing duties, colleagues said, Gilman’s desire for recognition remained and he began consulting for two pharmaceutical companies.
He was soon contacted by one of the first expert network firms, Gerson Lehrman, which began in 1998 by enlisting academics in health care and connecting them with financial firms. Experts on drug development, and especially those involved in drug trials, are sought by investors because the fortunes of a pharmaceutical company can rise or fall with the fate of a single treatment.
Gilman quickly became a popular consultant, working with more than 40 clients and participating in 50 to 100 meetings a year, people with knowledge of his work said. Each meeting paid around $1,000.
In 2006, the SAC Capital trader, Mathew Martoma, asked Gerson Lehrman to find an expert who knew about an Alzheimer’s drug under development, bapineuzumab, according to the affidavit filed by the FBI agent in the case. Gilman was chairman of the board monitoring trials of the drug. Gerson Lehrman connected the men, but told Gilman not to discuss the drug, according to the criminal complaint in the case.
Within weeks, Gilman was speaking with Martoma shortly after confidential meetings about the drug trials, the complaint said.
To avoid arousing suspicion at Gerson Lehrman, Gilman began asking Martoma to falsely request meetings on other topics, the complaint said. Ultimately, the men had 42 meetings. Gerson Lehrman declined to comment on the relationship.
At first, Martoma’s fund, CR Intrinsic, bought shares of the firms developing the Alzheimer’s drug, Wyeth and Elan, and encouraged SAC’s founder, Cohen, to do the same, prosecutors say. When Gilman told Martoma that the trial results were not as good as expected, the funds sold all their shares, netting gains and avoiding losses totaling $276 million, the complaint said.
Kenneth Fischbeck, a neurologist who has known Gilman for years, said that it might have been the same urge that led him to be such a good teacher — a desire to share information — that also led him into trouble.
“It’s a cautionary lesson for all of us in academic medicine," Fischbeck said. “I think it could happen to anybody if they’re not careful." The complaint said that Gilman eventually came to view Martoma “as a friend and a pupil."
Besides contracting with expert networks, Gilman was hired to serve on scientific advisory boards of financial firms including Pequot Capital. His connection to Pequot has rarely been mentioned, but that fund built up its own $25 million position in Wyeth stock and a stake of around $20 million in Elan, according to Pequot’s public filings, at the same time Gilman was overseeing drug trials for the two companies.
While the records don’t reveal the exact dates of trades, Pequot sold its Wyeth position in the quarter before both drug companies’ shares fell in 2007 and it sold its Elan position at some point during the quarter when it dropped, the filings show. Pequot went out of business in 2010 after admitting its own insider trading scandal involving Microsoft stock.
Neither Gilman’s lawyer, Mukasey, nor prosecutors would say whether investigators are questioning Gilman about his other relationships. In exchange for prosecutors’ not charging Gilman, he has agreed to share information about “any matters" they want to ask him about. Gilman stopped meeting with Martoma in 2008, the complaint said, but continued to consult for Gerson Lehrman until this year, people familiar with his work said.
Gilman’s life changed starkly Nov. 20, when Martoma was arrested. Gilman agreed to pay federal authorities $234,000 of the money he had earned from Wyeth and Gerson Lehrman. He has been ostracized by the university, and the consequences are broader still as a debate over the propriety of professors’ receiving payments from financial firms has been rekindled.
“What is the argument for sanctioning your full-time faculty, using your brand name, to advise the financial sector?" said Dr. Garret FitzGerald, a cardiovascular researcher at the University of Pennsylvania, who has been outspoken about conflicts of interest. “What’s the public good there?"