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 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 holding hands.
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 scheme.
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.
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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 the
verdict.
TWO DOCTORS
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 my memory.
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 FBI.
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.
(Reporting by Nate Raymond; additional
reporting by Joseph Ax and Emily Flitter; editing by Andre Grenon,
Bernard Orr)
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