Former SAC Capital Advisors LP fund manager Mathew Martoma, who was found guilty Feb. 6 in the most lucrative insider-trading scheme ever, is scheduled to be sentenced June 10 and may face as many as 20 years in prison.
Martoma, 39, was convicted of two counts of securities fraud, which carries a maximum 20 year term, and one count of conspiracy, which has a maximum five year term. U.S. District Judge Paul Gardephe may make each term concurrent, and has latitude to impose a significantly shorter sentence.
The longest insider-trading term of 12 years was given to attorney Matthew Kluger in 2012 for a $37 million scheme. The second-longest of 11 years was imposed upon Galleon Group LLC co-founder Raj Rajaratnam for a $72 million scheme.
Martoma was found guilty of a $275 million scheme. His was the seventh conviction tied to SAC Capital-related insider trading in the six-year probe of the hedge fund and its billionaire founder, Steven A. Cohen.
Jurors in Manhattan federal court found Martoma used secret tips on clinical trials of an Alzheimer’s disease drug to trade Wyeth and Elan Corp. shares. In doing so, he reaped a $275 million benefit for the fund.
Prosecutors claimed SAC Capital reversed its bullish stance on Wyeth and Elan in July 2008, selling a $700 million position days after Martoma learned the disappointing trial results for the drug, bapineuzumab, and shared a 20-minute phone call with Cohen. Martoma, who earned a $9.3 million bonus connected to the trades, chose to risk a trial after rejecting U.S. offers of a deal for cooperation.
As the jury delivered its verdict Thursday, the hedge fund manager showed no reaction. Gardephe allowed him to remain free on $5 million bond until his sentencing.
Martoma’s conviction “is a major win for the government,” said Anthony Sabino, a law professor at St. John’s University in New York, in an interview. “It may embolden them to go after Cohen.”
Cohen, 57, who denies wrongdoing, hasn’t been charged with a crime. He faces an administrative proceeding before the U.S. Securities and Exchange Commission claiming he failed to properly supervise trading at his firm.
The jury in the Martoma trial reached a guilty verdict after less than three days of deliberations. The conviction followed a similar verdict against SAC Capital fund manager Michael Steinberg, who was convicted in December of a separate insider-trading scheme involving technology stocks from 2008 to 2009. He hasn’t been sentenced and may yet seek to strike a deal with the U.S.
Martoma’s conviction raises the possibility that he also may seek to cooperate against Cohen in exchange for leniency, said Sabino. The disclosure during the trial of Martoma’s expulsion from Harvard Law School for creating a phony transcript, however, may lead prosecutors to reject such a deal, given the possible damage to his credibility as a witness.
The case is U.S. v. Martoma, 12-cr-00973, U.S. District Court, Southern District of New York (Manhattan).