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Empire of Eph

Check out this great New Yorker article, “The Empire of Edge,” about the insider trading conviction of Matthew Martoma of SAC. Key testimony in the case came from Sid Gilman, the doctor with information about an important drug trial. The Eph connection:

One day in 2002, Gilman was contacted by a doctor named Edward Shin, who worked for a new company called the Gerson Lehrman Group. G.L.G., as it was known, served as a matchmaker between investors and experts in specialized industries who might answer their questions. “It was kind of ridiculous that the hedge-fund business got so much information by asking for favors . . . when it would certainly pay,” the company’s chief executive, Mark Gerson, told the Times.

Shin proposed that Gilman join G.L.G.’s network of experts, becoming a consultant who could earn as much as a thousand dollars an hour. Gilman was hardly alone in saying yes to such a proposal. A study published in the Journal of the American Medical Association found that, by 2005, nearly ten per cent of the physicians in the U.S. had established relationships with the investment industry—a seventy-five-fold increase since 1996. The article noted that the speed and the extent of this intertwining were “likely unprecedented in the history of professional-industrial relationships.”

Gilman read the JAMA article, but disagreed that such arrangements were objectionable. In an e-mail to Shin, he explained that investors often offered him a fresh perspective on his own research: “Although remuneration provides an incentive, the most attractive feature to this relationship (at least for me) is the exchange.”

Gerson (class of 1994) created the company that put Gilman in touch with Martoma, thereby starting a chain of events that, the article makes clear, ruined both men’s lives. And Gerson got paid for doing so!

What lesson should we draw from that?

We wrote about Gerson nine years ago.

Investors want information. They are willing to pay for it. Doctors (and other technical experts) have information. They are willing to sell it. GLG and other firms bring the two together. Now, obviously, if a doctor has signed a contract promising not to reveal information about X, then she had better uphold the contract. Otherwise, she could be in a world of trouble.

Exactly right. Gilman should have read EphBlog, as should you all.