NEW YORK (Reuters) - A divided federal appeals court on Wednesday upheld the insider trading conviction of Mathew Martoma, a former portfolio manager for billionaire Steven A. Cohen’s SAC Capital Advisors LP, after the U.S. Supreme Court made such cases easier to pursue.
The 2nd U.S. Circuit Court of Appeals in Manhattan found “overwhelming” evidence that a Michigan doctor received financial benefits from providing confidential information to Martoma about a 2008 Alzheimer’s drug trial.
Martoma, 43, who worked at SAC’s CR Intrinsic Investors unit, was convicted in February 2014 of making $275 million of illegal gains in Elan Corp and Wyeth based on tips from the doctor. He is serving a nine-year prison sentence.
Paul Clement, the former U.S. solicitor general who argued Martoma’s appeal, declined to comment.
Acting U.S. Attorney Joon Kim welcomed the 2-1 decision, calling successful insider trading prosecutions critical to maintaining securities markets’ “integrity and fairness.”
Now called Point72 Asset Management LP, SAC pleaded guilty to fraud and paid $1.8 billion in U.S. criminal and civil settlements.
Cohen, worth $13 billion according to Forbes magazine, was not criminally charged, but accepted a two-year ban from managing outside money to settle a related Securities and Exchange Commission civil probe. His ban ends on Jan. 1, 2018.
Martoma’s appeal was reargued in May, following two major rulings bearing on his case.
In December 2014, the 2nd Circuit, whose jurisdiction includes Wall Street, overturned two insider trading convictions in U.S. v. Newman, saying prosecutors needed to show a tipper received a tangible benefit for providing inside information.
But last December, in U.S. v. Salman, the Supreme Court said the passing of such a benefit between relatives or friends was not a necessity.
In Wednesday’s appeals court decision, Chief Judge Robert Katzmann rejected Martoma’s argument that prosecutors still needed to show his “meaningfully close personal relationship” with the doctor, Sidney Gilman.
Katzmann said that requirement was “no longer good law” after Salman, and Martoma’s “quid pro quo” relationship with Gilman, whose consulting rate was $1,000 per hour, was sufficient.
Circuit Judge Rosemary Pooler dissented, saying the majority ignored precedents by holding that someone who bestows a “gift” of inside information always receives a personal benefit from doing so.
The majority “significantly diminishes the limiting power of the personal benefit rule, and radically alters insider-trading law for the worse,” Pooler said.
Kim’s predecessor Preet Bharara abandoned several insider trading cases after Newman, including by dropping the 2013 conviction of former SAC portfolio manager Michael Steinberg.
The case is U.S. v. Martoma, 2nd U.S. Circuit Court of Appeals, No. 14-3599.
Editing by Matthew Lewis