University News

Trustee’s former employee convicted

Verdict against Mathew Martoma marks eighth indictment of SAC Capital employees

By
University News Editor

Former SAC Capital Advisors L.P. portfolio manager Mathew Martoma was found guilty of insider trading Thursday, becoming the eighth employee of Corporation trustee Steven A. Cohen’s P’08 P’16 hedge fund who has pled guilty or been convicted on such charges, national news outlets reported.

Thursday’s verdict against Martoma, reached after two days of deliberation, may mark the culmination of criminal cases brought against SAC employees by federal prosecutors in their decade-long investigation of Cohen’s hedge fund.

The verdict also comes as SAC finalizes plans to change its name and corporate structure by mid-March, which the New York Times reported earlier this week. As part of the restructuring, SAC will cease managing outside money but will continue to invest approximately $9 billion of Cohen’s personal fortune.

Though no criminal cases are pending or immediately forthcoming against any current or former SAC employees, prosecutors said they continue to probe insider trading allegations against SAC, the Times reported. But the legal deadline for filing criminal charges on trading at the heart of the investigation is approaching.

Martoma, whose case began Jan. 6, is one of just two SAC employees indicted whose case proceeded to trial. The other, Michael Steinberg, was convicted in December.

The indictment accused Martoma of trading using proprietary information he obtained about unsuccessful clinical trials for a new drug to treat Alzheimer’s disease. Following a phone call Martoma had with Cohen after learning of the failed trial, SAC sold nearly its entire stakes in Elan Corporation P.L.C. and Wyeth Pharmaceuticals, the two companies developing the drugs, bringing in $276 million for the hedge fund through losses avoided and profits made.

The Manhattan federal court judge did not set a date for sentencing Thursday, but legal experts said they expect Martoma to serve seven to 10 years in prison, the Times reported.

“We’re very disappointed and we plan to appeal,” said Martoma’s lawyer, Richard Strassberg, according to multiple news outlets. SAC has paid for Martoma’s legal fees so far, but it was not clear Thursday whether the firm would continue to cover his legal costs should he proceed with an appeal.

Sidney Gilman, a doctor who served as the chairman of the safety committee for Elan during the clinical trials, was a key witness for the prosecution. Gilman testified last month that he supplied Martoma with confidential information about the trials on several occasions — most importantly in July 2008, when he told Martoma about problems with the drug trials.

Martoma’s case was the first involving trades tied directly to Cohen.

Though Cohen has avoided criminal charges, his hedge fund was indicted for multiple counts of fraud in July for what prosecutors deemed “systematic” insider trading and “institutional practices” that promoted a culture of improper trading.

Under a record insider-trading settlement reached with federal prosecutors in early November, SAC agreed to plead guilty to five insider trading counts, pay a roughly $1.2 billion sum and stop managing clients’ funds.

The Securities and Exchange Commission filed a civil suit against Cohen in July for “failing to supervise” employees accused of insider trading.

  • Close Observer

    In addition to the November 2013 $1.2 billion criminal plea agreement with federal prosecutors, SAC entered into two civil settlements with the SEC in March 2013, one involving the matters for which Steinberg was later convicted, for $14 million, and a pending settlement involving the matters for which Martoma was just convicted, for $602 million. The latter is awaiting formal approval by a federal judge, who is waiting for the Second Circuit to issue its opinion in the Citicorp case (oral arguments were a year ago) on whether federal district judges have authority to require an admission of wrongdoing as a condition to approving proposed SEC settlements.