Matthew Martoma worked as a portfolio manager at S.A.C. Capital Advisors (SAC), a hedge fund. Martoma managed an investment portfolio that was focused on pharmaceutical and health care companies and became interested in Elan Corporation (Elan), which was developing an experimental drug, bapineuzumab, to treat Alzheimer's disease. To obtain information about bapineuzumab, Martoma contacted Dr. Sidney Gilman, a doctor involved in the nonpublic clinical trials being conducted on the drug. Dr. Gilman had an obligation to maintain the confidentiality of the information about the bapineuzumab clinical trials. Martoma arranged for 43 consultations with Dr. Gilman, paying $1,000 per hour to obtain nonpublic information about the ongoing clinical trials. Based on Dr. Gilman's reports of initial success, on Martoma's advice SAC purchased shares of Elan. Subsequently, Dr. Gilman discovered that the results of the drug trials questioned the efficiency of bapineuzumab. Dr. Gilman shared this nonpublic information with Martoma. On Martoma's advice, SAC sold shares it owned of Elan stock at a profit and then entered into short-sale transactions that would be profitable if Elan's stock decreased in value. Eight days later, Dr. Gilman publicly reported the questionable results of the clinical trial, and the price of Elan's stock dropped by 42 percent. SAC profited by its short sales. The trades that Martoma advised SAC to make resulted in $80 million of gains and $194 million of adverted losses for SAC. Martoma was paid a bonus of $9 million by SAC based on the inside information about Elan. After a government investigation, the United States brought criminal charges against Martoma as a tippee for violating Section 10(b) of the Securities Act of 1934 and Rule 10b-5.

1.Is Martoma guilty of securities fraud?

2.Did Martoma act ethically in this case?

3.Did Dr. Gilman act ethically in this case?

4.What are beliefs without applying the law?