A jury took just three days to reach a verdict on the biggest illegal insider trading scheme ever brought before a courtroom: guilty as charged.
Mathew Martoma, a former portfolio manager at the hedge fund headed by billionaire Steven A. Cohen, was convicted on all counts in a major victory for prosecutors in their crackdown on the illicit use of confidential tips by traders.
Increasingly, that pursuit is focused on Mr. Cohen and his firm, SAC Capital Advisors LP. Mr. Cohen came up repeatedly during Mr. Martoma’s trial: The two men spoke over the phone shortly after Mr. Martoma learned a critical piece of secret information from a neurologist about a clinical trial of an Alzheimer’s drug, prosecutors said.
The neurologist, Dr. Sidney Gilman, became a key witness for the government and testified that Mr. Cohen was the ultimate quarry for law enforcement. A federal agent “mentioned that I am only a grain of sand, as is Mr. Martoma,” Dr. Gilman said during the trial.
“They are really after a man named Steven A. Cohen.”
Mr. Cohen has not been criminally charged and has said that he acted appropriately at all times. He is facing a civil action by U.S. regulators, who claim he failed to properly supervise his employees.
According to several reports, prosecutors have been unsuccessful in their attempts to persuade Mr. Martoma to testify against Mr. Cohen in exchange for more lenient treatment. The opportunity to strike a deal with prosecutors exists until Mr. Martoma’s sentence is imposed, experts said, although such an outcome is increasingly unlikely.
A spokesman for SAC declined to comment on the verdict. Richard Strassberg, Mr. Martoma’s attorney, said through a spokesman that he was “very disappointed” by the jury’s decision and planned to appeal, according to a report from Reuters. In theory, Mr. Martoma, 39, could face as much as 20 years in prison for the charge of securities fraud.
Thursday’s verdict is the latest win for U.S. federal prosecutors, who have assembled an unblemished record in insider-trading cases over the past four years. Mr. Martoma is the 79th person to be convicted of such charges in that time period, either after a trial or through a guilty plea. None have been acquitted.
Mr. Martoma “cultivated and purchased the confidence of doctors with secret knowledge of an experimental Alzheimer’s drug, and used it to engage in illegal insider trading,” said Preet Bharara, the top federal prosecutor in Manhattan, in a statement. “In the short run, cheating may have been profitable … but in the end, it made him a convicted felon.”
Prosecutors said that Mr. Martoma’s illegal trades were worth $276-million (U.S.) to SAC, both in the form of profits and avoided losses. Mr. Martoma advised the firm to make the relevant trades in two pharmaceutical companies, Elan Corp. and Wyeth, after receiving secret tips about a drug trial from Dr. Gilman, prosecutors said.
Dr. Gilman, an 81-year old retired professor of neurology at the University of Michigan, agreed to testify in exchange for immunity from prosecution. Mr. Martoma’s lawyers repeatedly portrayed Dr. Gilman as an unreliable witness whose only motivation was self-preservation.
The defence team succeeded in persuading the judge to keep two pieces of information away from the jury. Jurors did not hear that Mr. Martoma fainted outside his Florida home when first approached by two federal agents in 2011, nor did they learn of his expulsion from Harvard Law School for falsifying parts of his transcript.
The decision comes at a delicate juncture for SAC. Including Mr. Martoma, eight current and former employees have been convicted of insider trading; the firm itself pleaded guilty to criminal charges last fall and agreed to pay a penalty of $1.2-billion. SAC is transforming itself into an entity responsible for managing Mr. Cohen’s personal fortune – an estimated $9-billion – and plans to change its name.