Former SAC Capital Advisors LP hedge fund manager Mathew Martoma is seeking leniency for his record $276 million insider-trading scheme, in part because he only did it once.
“Martoma was convicted of insider trading over the course of at most two weeks based on one piece of information from one tipper about one event,” attorney Richard Strassberg said in a court filing ahead of his client’s June 10 sentencing. He “is less culpable than other recent insider-trading defendants.”
The government’s probation department, which makes recommendations based on federal sentencing guidelines, differed: It recommended one of the most severe insider trading prison terms in U.S. history, from 15 to 20 years, for what prosecutors called the most lucrative illegal trades ever.
Calling the recommendation “outrageous,” Strassberg cited cases he said were similar to Martoma’s in which defendants received as little as two years. The sentencing range, the lawyer said, should be between 5 and 6 1/2 years.
Prosecutors have yet to make their own recommendation to U.S. District Judge Paul Gardephe in Manhattan. It’s probable though that Martoma’s repeated rejection of their offers of a plea deal in exchange for cooperation may figure into U.S. calculations, as well as the $276 million gained by SAC.
Martoma, who turns 40 this month, was convicted in February on two counts of securities fraud and one count of conspiracy after he helped SAC profit or avoid losses on illegal tips about an Alzheimer’s drug by trading in Elan Corp. and Wyeth LLC.
Prosecutors claimed SAC Capital reversed its bullish stance on the two pharmaceutical companies in July 2008, selling a $700 million position soon after Martoma learned the disappointing trial results for the drug, bapineuzumab, and shared a 20-minute phone call with SAC Capital’s founder Steven A. Cohen.
Martoma, who prosecutors said earned a $9.3 million bonus, is among eight managers and analysts convicted in the seven-year investigation of Stamford, Connecticut-based SAC Capital and Cohen, amid a broader insider crackdown on hedge funds, technology companies and so-called expert-networking firms.
SAC Capital last year reached a $1.8 billion settlement with the U.S., pleading guilty to making hundreds of millions of dollars in illegal profits and fostering a criminal culture at the firm. The hedge fund has since shut its doors to outside investors and changed its name.
Cohen, who has denied wrongdoing, hasn’t been charged with a crime, but is the subject of an administrative proceeding by the Securities and Exchange Commission.
Former SAC manager Michael Steinberg, the longest-serving employee of the hedge fund convicted in the probe, was sentenced earlier this month to 3 1/2 years in prison, three years less than the maximum sought by the government.
Steinberg successfully leveraged almost 70 letters of support touting his philanthropy and other good works as justification for a lesser term than that sought by federal prosecutors.
On Martoma’s behalf, more than a 100 people wrote letters in support of his “tight-knit, fragile family,” Strassberg said in the May 27 court filing.
“Those letters speak with one voice describing Mr. Martoma as a uniquely devoted husband and father, a man who puts his family above all else -- the glue that holds together three young children,” Strassberg wrote.
A phone message left with the office of Manhattan U.S. Attorney Preet Bharara seeking comment on the defense filing wasn’t returned. His office yesterday asked an SEC administrative judge to delay Cohen’s matter until Martoma’s case, and appeals of other ex-SAC Capital manager convictions, are resolved.
The probation department’s recommendation attributes the entire $276 million benefit that SAC got from the drug company trades to Martoma, significantly boosting his sentencing range.
Martoma argued that his sentence should be based on his bonus minus taxes, a sum he said is only $6.3 million. To make his case, he points to his former boss’s testimony in the SEC investigation. Cohen testified that he didn’t rely on Martoma’s information to make the Elan and Wyeth trades.
In his bid for leniency, Martoma mentions his 1999 expulsion from Harvard Law School for faking a transcript of his grades, arguing that he has been “punished enough” by having the episode publicized at his trial.
Martoma said he performed “his own personal penance” after leaving Harvard, volunteering to work with poor people in Florida and in orphanages in India.
Martoma didn’t mention a failed computer forensics company, one he started working at in 1999 with a Massachusetts man under indictment for defrauding financial firms of $12.6 million.
The man, Stephen Chan, later pleaded guilty to fraud and conspiracy and was sentenced to more than four years in prison.
Prosecutors said Martoma used the company to create a phony expert report to bolster his unsuccessful appeal of his Harvard expulsion.
After leaving the law school, Martoma earned a Masters’ degree from Stanford University’s School of Business, which the school later revoked when Martoma’s expulsion became public.
The case is U.S. v. Martoma, 12-cr-00973, U.S. District Court, Southern District of New York (Manhattan).