Ex-SAC manager Martoma found guilty as US sweeps insider cases

Bloomberg NewsFebruary 6, 2014 

— Former SAC Capital Advisors fund manager Mathew Martoma was found guilty Thursday in the most lucrative insider trading scheme ever as federal prosecutors racked up a seventh conviction in their six-year probe of the hedge fund and its billionaire founder, Steven A. Cohen.

Jurors in Manhattan federal court found Martoma, 39, 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 hedge fund. Martoma chose to risk a trial after rejecting U.S. offers of a deal for cooperation. He faces as long as 20 years in prison on the most serious counts.

A Martoma conviction “is a major win for the government,” Anthony Sabino, a law professor at St. John’s University in New York, said in an interview. “It may embolden them to go after Cohen.”

The jury reached a verdict after less than three days of deliberations. The conviction follows a similar verdict against SAC Capital fund manager Michael Steinberg, who was found guilty in December of a different scheme at the hedge fund. 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, Sabino said. The disclosure of Martoma’s expulsion from Harvard Law School for creating a phony transcript may lead prosecutors to reject such a deal, however, given the possible damage to his credibility as a witness.

Martoma was allowed to remain free on bail until sentencing.

In the Martoma case, prosecutors claimed SAC Capital reversed a bullish stance on Wyeth and Elan in July 2008, selling off 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.

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.

In November, SAC Capital agreed to plead guilty to securities fraud in a landmark prosecution of the financial company. The hedge fund agreed to end its investment advisory business and pay $1.8 billion. The plea deal must be approved by a judge before it can take effect.

Manhattan U.S. Attorney Preet Bharara’s office has filed insider-trading charges against 83 people and four entities – all of them units of SAC Capital – in its investigation of fund managers, company insiders and expert-networking firms.

As of Wednesday, prosecutors have won 78 convictions, mostly through guilty pleas. No one charged in the probe has been acquitted of insider-trading. Cohen, who didn’t testify at Martoma’s trial, was frequently mentioned during more than three weeks of testimony.

SAC Capital declined to comment on the verdict through its spokesman, Jonathan Gasthalter at Sard Verbinnen & Co.

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