According to the U.S. attorney, after receiving a tip that pharmaceutical companies Elan and Wyeth would soon disclose negative Alzheimer drug trials tests in late July 2008, Martoma of SAC Capital is alleged to have told SAC's owner to liquidate the fund's position in both companies' shares.

SAC did so via its head trader and a massive selling program of over 10.5 million Elan shares over a span of four days. The U.S. attorney says in its charge that SAC Capital's selling represented over 20% of the reported trading volume in Elan's shares and 11% of the volume of Wyeth's shares in the seven trading days prior the disclosure of negative drug trials.

Still, emails floated between a SAC trader who executed the sale, the fund's owner and Martoma show that SAC Capital felt its selling had gone undetected by the wider market. The main reason: the use of trading algorithms and dark pools.

"We executed a sale of over 10.5 million ELN for four internal Hedge Fund account names at an avg price of 34.21. This was executed quietly and effectively over a 4 day period through algos and darkpools," writes the executing trader, according to the U.S. attorney's complaint.

"This process clearly stopped leakage of info from either in or outside the firm and in my viewpoint clearly saved us some slippage," the trader adds.

Dark pools are used by large traders to put out buy and sell orders without revealing their identity, thus avoiding smaller traders attempting to front-run their orders.

Venues like BATS Global Market, Direct Edge and those owned by the New York Stock Exchange, Nasdaq and investment banks like Goldman Sachs ( GS), Credit Suisse ( CS) and UBS ( UBS) are considered to be a breeding ground for high-frequency traders, who have been accused of front-running actual stock buying by ordinary investors and fund managers.

In spite of such large stock selling -- and just days ahead of a market-moving drug-trial announcement -- the SEC doesn't appear to have taken much notice of SAC's trading. Or at least not for many years.

The SEC did notice suspicious trades of a much smaller size in Heinz prior to the company's acquisition Thursday, a commendable sign that enforcement officials are watching over Wall Street for those who seek to make illegal profits.

Still, the amount of time it took for the SEC to bring an action against the former SAC Capital trader and the indication that suspected illegal trades occurred in opaque corners of Wall Street may add evidence of the need for more transparency.

-- Written by Antoine Gara in New York

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