What led a highly esteemed academic professional from a life of teaching to illicit sharing of insider information?
According to a recent New York Times article, the corrupting influence of money drove respected doctor, dementia researcher and University of Michigan professor Sidney Gilman to breach his ethical responsibilities when he consulted with a variety of financial services firms as an expert.
It is an interesting look inside the life of a man who was described as “grandfatherly” and as having a great gift for teaching. At least, it is a much of a look as one can get given that Dr. Gilman declined to comment for the story.
Dr. Gilman has reached a non-prosecution agreement with authorities in exchange for forfeiting $234,000 of his earnings from Gerson Lehrman and drug company Wyeth (for whom he was directing trials of the Alzheimer’s drug, bapineuzumab, when he allegedly leaked information to Matthew Martoma of SAC Capital.) Dr. Gilman has also agreed to answer all of the authorities’ questions.
According to the Times, Dr. Gilman’s career trajectory took a decided turn around 2000, when he scaled back his secondary commitments, including contributing to journals of academic research, and began connecting with institutional investors via expert networks. He picked up about 50 to 100 one hour meetings with investors per year, at a rate of $1000 per hour.
One long-time acquaintance, neurologist Kenneth Fischbeck, speculated that what drew Dr. Gilman to the expert networks was the same thing that drew him to teaching: passing along useful information.
In the case of expert networks, though, some information is too useful to be passed on legally. That appears to be where Mr. Gilman ran into trouble.
In 2006, SAC Capital trader Matthew Martoma asked Gerson Lehrman to refer an expert with knowledge of bapineuzumab, an Alzheimer’s drug under development at the time. The firm referred Dr. Gilman, but told him not to talk about the drug with Mr. Martoma. One would imagine that such a request was accompanied by a wink and a nod. Why would the firm have given Mr. Martoma access to such a privileged insider, if not for the material information he could provide?
The two men had 42 subsequent meetings in which Dr. Gilman passed on nonpublic results of clinical trials, ultimately resulting in net gains and avoided losses totaling $276 million for Mr. Martoma’s fund, CR Intrinsic.
Was it truly the love of money, and the luxe lifestyle that accompanies it, which drove Dr. Gilman on an errant path? The Times quotes a 17-year-old girl who happened to sit next to Dr. Gilman on an airplane. She said of their casual conversation on board the flight, “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.” According to the Times, Dr. Gilman’s activities at Gerson Lehrman brought in an extra $100,000+ of income per year, on top of his $258,000 salary at the University of Michigan. He kept his additional income quiet; few of his Michigan-based colleagues noticed a difference in his style of living.
And yet, Dr. Gilman and the other experts employed by expert network firms are far from expected to share insider information with their clients. Of course, such behavior is expressly forbidden by the expert network firms, which, one hopes, have a robust compliance culture in place that allows them to monitor conversations and keep activities legal. (For a more in-depth look at the politics of compliance at an expert network, click here.) As such, Dr. Gilman could have earned the same supplemental income (and the lifestyle perks afforded by his relationships to the New York finance world) without breaking the law.
Further, as Dr. Gilman is not accused of pocketing any additional financial rewards from his clients, one can assume that he did not actually have a financial incentive to break the law.
Rather, I believe, his incentive was psychological. It may be hard to imagine that someone at the top of his career game, in a position of prestige at a well respected university, with the opportunity not only to oversee groundbreaking research but also to share his knowledge with young and impressionable minds, would feel a void, would need further external validation of his worth.
And yet, based on the little information I have to go on, I would hypothesize that this is the case for Dr. Gilman, and with many others who share privileged information.
Yes, the glamorous and exclusive world of New York finance had its allure for Dr. Gilman. But his eyes didn’t shine from coveting wealth. He wanted, I imagine, that elusive prize: the sense of being necessary to others. For years he had contributed grandly to one world. He knew he was needed there. But the reality that his knowledge made him necessary to another, more glitzy world, tantalized him, and in the end, brought him to his knees.
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