In yet another success for US Attorney Preet Bharara in his big push against insider trading, a Manhattan federal jury has convicted Indian-American portfolio manager Mathew Martoma of securities fraud by using confidential information that enabled the discredited SAC Capital to illegally earn $275 million.
It is the 79th successful insider trading conviction secured by Bharara’s office in the last four years. His previous scalps have included Indian-American corporate honcho Rajat Gupta and the Sri lanka-born hedge fund billionaire Raj Rajaratnam. The 39-year-old Martoma, according to legal experts, could be facing seven to 10 years in prison, if not the maximum of 45 years provided for the three counts he has been found guilty of. “We’re very disappointed and we plan to appeal,” said Martoma’s lawyer, while his wife, Rosemary, broke down in the court of US District Judge Paul G. Gardephe.
The eighth person from SAC Capital to be convicted, Martoma has attended some of America’s prestigious schools. He graduated from Duke, attended Harvard law School and earned an MBA from Stanford Business School. Martoma, however, was kicked out of Harvard for reportedly doctoring his law school transcript while trying to gain a federal clerkship. It also turned out during the investigations in the case that after the Harvard episode, Martoma had changed his name from Ajai Mathew Thomas. He was admitted to Stanford, where officials were apparently unaware that he had been expelled from Harvard, The New York Times reported, adding: “His deception at Harvard remained a secret for years, even among those who worked alongside him at SAC.”
Soon after the verdict in the case, Bharara termed it the “most lucrative insider trading scheme ever charged”. “As the jury unanimously found, Mathew 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,” Bharara said, remarking: “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.”
“In the short run, cheating may have been profitable for Martoma, but in the end, it made him a convicted felon, and likely will result in the forfeiture of his illegal windfall and the loss of his liberty,” Bharara said. Martoma was convicted of one count of conspiracy to commit securities fraud and two counts of securities fraud. The first carries a maximum penalty of five years in prison, while each of the other two counts stipulates up to 20 years, all making for a total of 45 years.
He also faces a maximum fine of $250,000 for conspiracy, and up to $5 million for each of the two charges of securities fraud. Martoma had been accused of using expert networking firms with confidential information about an ongoing drug trial being conducted by pharmaceutical firms Elan and Wyeth for the treatment of Alzheimer’s Disease. He had arranged dozens of paid consultations with a principal investigator of the drug trial and the chairman of the trial’s safety monitoring committee.
“Through an exploitation of Martoma’s personal and financial relationships with these doctors, Martoma was able to obtain Inside Information about the Drug Trial,” Bharara’s office said, noting that based on the information, Martoma purchased and held shares of Elan and Wyeth, and further recommended that the SAC owner purchase and hold securities of these pharmaceutical companies. “By the spring of 2008, SAC Capital held approximately $700 million worth of Elan and Wyeth equity securities.”