Prison looms for onetime law student: 2nd Circuit denies stay in 'most lucrative' insider-tip case
Saying that Mathew Martoma had failed to show any “substantial question of law or fact” in his appeal of a high-profile insider-trading conviction, a federal appeals court has lifted a stay of his nine-year prison sentence over a tip that prosecutors said earned $275 million for his employer.
While the appeal will continue for the former SAC Capital hedge fund manager and onetime Harvard Law School student, he is now expected to be sent to prison soon, according to the New York Times’ DealBook blog and Reuters. A federal district judge will set a new date for Martoma to report to prison after the ruling Wednesday by the New York-based 2nd U.S. Circuit Court of Appeals.
Appellate lawyers for Martoma had argued that he might not have been convicted if the trial judge had allowed a deposition by hedge fund manager Steven A. Cohen into evidence.
The New Yorker last month published a lengthy article about what led to Martoma’s downfall:
The case concerned a $700 million position in two pharmaceutical companies unloaded by SAC Capital in 2008. The companies had collaborated on an experimental Alzheimer’s drug. Within a little more than a week before Dr. Sid Gilman announced at a July 2008 scientific conference in Chicago that the drug hadn’t performed as well as expected in a research trial, SAC capital not only sold all its stock but shorted the stock. The result was a $275 million profit for the hedge fund once stock prices for the two drug companies dropped after the conference.
Although Gilman and Cohen had never met, federal prosecutors said Martoma, who had long had an interest in Alzheimer’s research, repeatedly spoke and met over a several-year period with Gilman. The doctor was a paid consultant as well as an academic in charge of the neurology department at the University of Michigan. Martoma passed on to Cohen information that suggested how drug company stock might perform, the government alleged.
Cohen was never accused of violating insider-trading laws, and a FBI wiretap on his home telephone revealed no wrongdoing, the article says. However, noting the huge reversal in SAC Capital’s investment in the two drug companies, the New York Stock Exchange alerted the Securities and Exchange Commission. After a year of investigating phone records, the connection between Gilman and Martoma was uncovered.
Gilman cooperated with the government, was not charged and resigned from the University of Michigan. But lawyers for Martoma never suggested a plea bargain after he was approached by FBI agents in late 2011, the New Yorker reports. Meanwhile, SAC Capital agreed in 2013 to pay $616 million to the SEC to settle civil insider-trading charges. Not long afterward, SAC Capital was criminally indicted, resulting in an agreement by the company to pay $1.8 billion to the feds.
At Martoma’s trial earlier this year, defense lawyers attacked Gilman’s credibility, and the elderly man repeatedly seemed confused on the stand, the magazine says. They also argued that any information Martoma got from Gilman was publicly available. Martoma didn’t testify because doing so would have brought up his expulsion from Harvard law school, as prosecutors attacked his credibility.
Convicted of two securities fraud counts and a single count of conspiracy, Martoma was sentenced based both on SAC Capital’s profit of $275 million and a $9.3 million bonus he received for his work that year. He and his wife expect to lose their life savings and their Florida home, the New Yorker reports; and Stanford University rescinded his admission to its business school, effectively rescinding the master’s degree Martoma earned there years ago.
At sentencing, U.S. District Judge Paul Gardephe brought up Martoma’s expulsion from Harvard, citing a “common thread” between submitting altered law school transcripts on judicial clerkship applications and the insider-trading case. is case. The judge called it an “unwillingness to accept anything other than the top grade, the best school, the highest bonus—and the willingness to do anything to achieve that result.”
Although Martoma himself declined to speak with a New Yorker reporter, his wife insists he is headed to prison for a crime he didn’t commit.
Related coverage:
ABAJournal.com: “Ex-Hedge Fund Manager Accused in Possibly ‘Most Lucrative Inside Tip of All Time’”
ABAJournal.com: “Unprecedented Era of Insider-Trading Enforcement Casts a Wide Net, With Help of Electronic Evidence”
ABAJournal.com: “Defendant in high-profile insider-trade trial was expelled from Harvard Law School, prosecutors say”
ABAJournal.com: “Onetime law student Mathew Martoma gets 9 years in ‘most lucrative’ $275M insider-trading case”
See also:
New York: “The Taming of the Trading Monster”
