(Bloomberg) — Former SAC Capital Advisors LP portfolio manager Mathew Martoma was sentenced to nine years in prison for the most lucrative insider-trading scheme in history, in what may be prosecutors last hurrah in the investigation of billionaire Steven A. Cohen.
Martoma, 40, convicted of making $275 million for SAC by using illegal tips to trade in Elan Corp. and Wyeth LLC, had rejected government offers of leniency in exchange for his cooperation in the probe of Cohen and his Stamford, Connecticut- based hedge fund.
Martoma got the longest sentence of seven former analysts and fund managers from the firm to be convicted, closing a chapter in the pursuit of Cohen by Manhattan U.S. Attorney Preet Bharara. The SAC investigation was part of a larger government crackdown on insider trading at hedge funds including Galleon Group LLC, co-founded by Raj Rajaratnam.
Martoma planned one big score that would provide him with financial security, U.S. District Judge Paul Gardephe said at yesterdays sentencing in Manhattan. His plan worked, but now he will have to deal with the fallout.
Martoma registered no emotion as Gardephe delivered the sentence. His wife, Rosemary, frequently wiped away tears during the hearing.
Martoma plans to appeal, according to a statement issued by law firm Goodwin Procter LLP on behalf of his family.
Mathew Martoma and his family are devastated by the outcome, according to the statement.
81 Convictions
Since August 2009, Bhararas office has charged 89 people with insider trading and won 81 convictions, most through guilty pleas. Only one defendant, Rajaratnams brother, Rengan Rajaratnam, was found not guilty at trial. The remaining seven cases are pending.
Martoma received the third-longest sentence, after Rajaratnam, whos serving 11 years in a medical prison in Massachusetts, and former Galleon trader Zvi Goffer, whos serving 10 years in Pennsylvania.
Todays sentence of a lengthy prison term is well-suited to the audacity of the illegal trading in this case, Bharara said yesterday in a statement after the sentencing.The long and short of Mathew Martomas trading is that he traded his liberty, his name and his time with his family for what in the end is nothing.
Staggering Amount
In making his decision, Gardephe said he considered the staggering amount Martoma gained through his insider trading. In addition to the $275 million gain for SAC Capital, Martoma was paid a $9.4 million bonus for his illicit Wyeth and Elan trades.
I cannot and will not ignore that the gain here is hundreds of millions of dollars — more than has ever been seen in an insider-trading prosecution, Gardephe said.
The judge referred to the 140 letters he received from Martoma supporters, citing examples of his charity and good works.
Gardephe also cited a darker side to his character, evidenced by Martomas 1999 expulsion from Harvard Law School for faking a transcript and lying to school administrators. Martoma sent the forgery to 23 federal appeals court judges with his applications for clerkships. Martoma later failed to disclose the expulsion to Stanford University, which withdrew his M.B.A. degree when it became public.
Top Grade
I do believe there is a connection to what happened there and what happened at SAC, Gardephe said. The common thread is the 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.
Gardephe ruled earlier that nonbinding guidelines called for a term of more than 15 years to almost 20 years based on the amount of illicit profit, a term he said yesterday was far more than necessary.
The judge rejected arguments by Martomas lawyer, Richard Strassberg, that his client should be sentenced to two or three years. He told Gardephe that Martomas fragile family circumstances warrant a lower sentence. In redacted court filings, Martomas team referred to medical and psychological concerns relating to his wife.
Substantially Punished
Martoma has already been substantially punished, Strassberg argued. He lost his career and has been financially ruined, the lawyer said. He urged Gardephe to avoid a sentence that prevents his children from seeing him outside the walls of a prison, for the rest of their childhood.
Gardephe ordered Martoma to report to prison Nov. 10. At Strassbergs request, Gardephe said hell recommend that Martoma be assigned to a federal prison camp in Miami.
In addition to the prison time, Gardephe ordered Martoma to serve three years probation when hes released. Martoma must also forfeit assets up to the amount of his $9.4 million bonus, including bank accounts and his Boca Raton, Florida, home.
Martoma was found guilty in February of receiving illegal tips from two doctors overseeing clinical tests on bapineuzumab, an Alzheimers disease drug, to make trades for the benefit of SAC Capital.
Prosecutors claimed that by 2008 the hedge fund had accumulated a huge position in Elan and Wyeth, the companies behind the drug, while Martoma was getting inside information that the tests were going well.
SAC reversed its bullish stance in July 2008, soon after Martoma got confidential information on disappointing drug trial results. Martoma and Cohen shared a 20-minute call on July 20, 2008. The firm liquidated its $700 million position in the companies within days, prosecutors said.
Test Results
Elan and Wyeth announced the negative test results on July 29. Elan dropped 32 percent the following day. Wyeth fell the most in six years.
Cohen testified in a 2012SECdeposition that SAC sold Elan after Martoma told him he had become uncomfortable with the firms position in the shares. Cohen said he decided to sell the Wyeth stock on the recommendation of Wayne Holman, a former SAC employee who left and started Ridgeback Capital Management LLC.
Cohen, 58, who hasnt been charged with a crime, has denied all wrongdoing. He is the subject of a U.S. Securities and Exchange Commission administrative proceeding in which he is accused of failing to supervise the hedge funds employees, including Martoma and former fund manager Michael Steinberg, who was sentenced in May to 3 1/2 years in prison for insider trading.
SAC Capital, which has changed its name to Point72 Asset Management LP, agreed last year to pay $1.8 billion and plead guilty to securities fraud and other charges to resolve the insider-trading probe of the firm.
Former Convictions
Seven former SAC fund managers and analysts — Noah Freeman, Donald Longueuil, Jon Horvath, Wesley Wang, Richard Lee, Steinberg and Martoma — were convicted of insider-trading schemes. An eighth man, Richard Choo-Beng Lee, an SAC Capital analyst from 1999 to 2004, pleaded guilty in 2009 to insider trading while at Spherix Capital LLC, a hedge fund he co- founded. The government said Lee provided inside tips to an SAC unit after he started Spherix, according to the SAC indictment.
While Martoma has refused to cooperate with the government, prosecutors may still seek leniency for defendants who provide information, even after they are sentenced.
The government asked Gardephe to sentence Martoma to more than eight years in prison. They argued that Martoma cultivated and corrupted the two doctors to give him illegal inside tips.
After yesterdays hearing, Martoma and his wife left the courthouse, surrounded by lawyers, and were driven away in a black Chevy Tahoe without commenting.
The crowd of reporters, photographers and onlookers gathered outside the federal courthouse in downtown Manhattan after the hearing was outnumbered by the group outside the state courthouse next door. That group watched as Steven Spielberg directed actors dressed in period business clothes for a Cold War thriller called St. James Place starring Tom Hanks.
The case is U.S. v. Martoma, 12-cr-00973, U.S. District Court, Southern District of New York (Manhattan).
