By Nate Raymond
NEW YORK Feb 6 Mathew Martoma, a former
portfolio manager at billionaire Steven A. Cohen's SAC Capital
Advisors hedge fund, was found guilty on Thursday of engaging in
what prosecutors called the most lucrative insider trading
scheme in U.S. history.
A federal jury in New York found Martoma guilty on all three
of the conspiracy and securities fraud charges that he faced,
over a scheme that allowed SAC Capital to make profits and avoid
losses of $275 million.
The verdict was the eighth insider trading conviction of a
current or former employee at SAC Capital, a $14 billion hedge
fund that has long been in the cross-hairs of the FBI and Preet
Bharara, the U.S. Attorney in Manhattan.
Martoma gave no apparent reaction as the verdict was read.
His wife, Rosemary, sat up in her seat in court as the verdict
was read, with tears going down her face. They exited the court
As news photographers snapped pictures, Martoma walked
stone-faced out of the courthouse and into a waiting SUV with
his wife and defense team. They did not speak to reporters.
"We are very disappointed and we plan to appeal," Richard
Strassberg, Martoma's lawyer, said through a spokesman.
U.S. District Judge Paul Gardephe did not immediately set a
sentencing date. Martoma, 39, could face a maximum 45 years in
prison, although the highest sentence to date in an insider
trading case is 12 years.
The verdict came after a different jury in the same
courthouse in December convicted Michael Steinberg, a portfolio
manager at SAC Capital, on five conspiracy and securities fraud
counts for his role in a separate insider trading
SAC Capital last year agreed to pay $1.8 billion in criminal
and civil settlements and plead guilty to fraud charges stemming
from insider trading by its employees.
The U.S. Securities and Exchange Commission is meanwhile
seeking to bar Cohen from the financial services industry for
failing to supervise Martoma and Steinberg.
The conviction continued an unbroken winning streak at trial
for U.S. Attorney Bharara, who has secured guilty pleas or
verdicts against 79 individuals since October 2009 as part of a
broad crackdown by his office on insider trading on Wall Street.
"This unbroken string of wins for the government in insider
trading cases will have huge impact," said Thomas Gorman, a
defense lawyer at law firm Dorsey & Whitney. "It's getting
widely circulated, so it does have a chilling effect of those in
the trading business considering insider trading."
"GRAIN OF SAND"
Martoma, who worked in SAC's CR Intrinsic Investors
division, was accused of seeking out confidential information
from doctors involved in a clinical trial of an Alzheimer's drug
being developed by Elan Corp Plc and Wyeth, now owned
by Pfizer Inc.
Based on a tip Martoma received a doctor about negative
trial results for the drug, SAC Capital in July 2008 began
selling its $700 million position in Elan and Wyeth before the
data was made public later that month, prosecutors said.
"Martoma bought the answer sheet before the exam - more than
once - netting a quarter billion dollars in profits and losses
avoided for SAC, as well as a $9 million bonus for him," Bharara
said in a statement.
Martoma chose to go to trial rather than cooperate with
prosecutors in their investigation of Cohen. Such cooperation
often results in leniency at sentencing.
"The time to cooperate is not after you've been found guilty
it's before you go to trial," said C. Evan Stewart, a partner at
Cohen & Gresser.
During almost five weeks of trial, prosecutors said that
most of the trading took place in accounts controlled by Cohen.
They also said that Martoma had a 20-minute phone call with
Cohen after receiving information about the negative results.
While Cohen has not been criminally charged, Sidney Gilman,
the doctor who tipped Martoma, said at trial than an FBI agent
on approaching him the first time had called Martoma a "grain of
sand" in what was an investigation of Cohen.
Strassberg, Martoma's lawyer, said during the trial that
prosecutors erred in bringing the case "in their haste to make a
case against someone who is not even in this courtroom: Mathew
Martoma's boss, Steven Cohen."
A representative for SAC Capital declined to comment after
At trial, prosecutors presented testimony of Gilman and
another doctor, Joel Ross, who said they provided confidential
information to Martoma during paid consultations through firms
that connect investors with experts.
Gilman, then a professor at University of Michigan who
chaired the drug's safety monitoring committee, had spoken with
Martoma during more than 40 paid consultations arranged through
expert networking firm Gerson Lehrman Group, earning more than
$70,000 in the process, prosecutors said.
Gilman testified that after he was picked to present the
drug trial's final results at a Chicago conference, he called
Martoma on July 17, 2008, and told him the details.
Martoma two days later came to Michigan and met with him at
the doctor's office and reviewed draft slides for the
presentation, Gilman said.
Gilman, though, said he did not initially remember the 2008
office meeting when investigators questioned him about it. He
only recalled some details as recently as two weeks before he
took the stand, adding there were "still remains some holes in
Both doctors testified pursuant to non-prosecution
agreements, a fact the defense sought to use to call into
question their credibility. Both doctors had denied giving
Martoma confidential information when first confronted by the
Martoma's lawyers also sought to provide alternative
explanations for the stock sales and contended there was no
meaningful difference between the final results and a preview of
them described in a June 17, 2008, news release by Elan.
The case is U.S. v. Martoma, U.S. District Court for the
Southern District of New York, 12-cr-00973.