Hedge-Fund Guy Cohen's Plausible Deniability

Jonathan Weil joined Bloomberg News as a columnist in 2007, and his columns on finance and accounting won Best in the Business awards from the Society of American Business Editors and Writers in 2009 and 2010.
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If Mathew Martoma was ever going to strike a deal with the government and turn against his former boss, Steven A. Cohen, he probably would have done it a long time ago. The odds that he ever will look even more remote now.

Lawyers for Martoma, the former SAC Capital Advisors fund manager, filed excerpts from a May 2012 deposition in which Cohentold attorneys for the Securities and Exchange Commission that he decided to sell SAC's stakes in Wyeth and Elan Corp. based on advice from the head of a different hedge fund. Martoma's insider-trading trial is scheduled to begin next month. His lawyers say the previously undisclosed testimony shows Martoma wasn't involved in Cohen's decisions on the trades.

Prosecutors, by contrast, have said that Martoma and Cohen had a 20-minute phone conversation the day before SAC began trading in shares of the two drugmakers, and that the trades were based on confidential information that Martoma had received from a doctor who worked as an adviser to Elan. The government has accused Martoma of making $276 million in profits and avoided losses for SAC based on inside information about the companies.

We don't know whose version is true, of course. Yet here's what I found noteworthy: Martoma's stance is consistent with the notion that he isn't in a position to implicate Cohen. And that's an important point. Whether Martoma might agree to testify against Cohen someday has long been a subject of speculation in the financial press.

In a June blogpost I wrote that, if I had had to make a wager, I would bet that Martoma didn't have the goods on Cohen. SAC had fired him in 2010 for poor performance. On his way out the door, one SAC employee called Martoma a "one-trick pony with Elan," according to the government's original complaint against Martoma last year.

It didn't make sense to me that Cohen would have let SAC fire someone who was in a position to finger him for criminal conduct. To paraphrase aline made famous by President Lyndon Johnson, you want someone like that on the inside of the tent pointing out, not the outside of the tent pointing in.

Cohen stillfacesan SEC administrativecomplaint filed in July that accuses him of failing to supervise the hedge fund's employees, including Martoma. SAC Capital in November agreed to plead guilty to securities-fraud charges, including some related to its trading in Wyeth and Elan. Prosecutors didn't file criminal charges against Cohen, however, and there may be a simple explanation for this: They lacked evidence. Perhaps Martoma didn't have any to offer them.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Jonathan Weil at jweil16@bloomberg.net