Former SAC Capital Advisors LP portfolio manager Mathew Martoma’s bid for freedom rests with a federal appeals court that’s weighing his insider-trading conviction.
Martoma is serving nine years in a Florida prison for using illegal tips to make $275 million on trades in Wyeth LLC and Elan Corp. His lawyers on Wednesday asked a federal appeals court in Manhattan to overturn the case. The three-judge panel didn’t rule.
The appeal comes just days after the U.S. dropped insider-trading charges against Michael Steinberg, a former SAC Capital fund manager who was convicted by a jury, in the latest fallout from a major appellate ruling that made such prosecutions more difficult. The government also abandoned charges against six people who pleaded guilty and cooperated with the U.S.
Prosecutors have now dismissed or lost on appeal 14 of 87 convictions won during a six-year crackdown on insider trading. One trial ended in an acquittal.
The Martoma case was the largest insider-trading prosecution ever brought against an individual. He was one of eight traders and analysts convicted while at SAC Capital, although two of those cases have now been tossed out.
Martoma on appeal is relying on the same 2014 appeals court decision, which said prosecutors must prove at trial that the accused knew the tipper got a concrete benefit for leaking secret information. But it may be harder for Martoma to prevail because the tipper in his case received fees for consulting with him about a drug in development. In the Steinberg case, prosecutors didn’t prove he knew the alleged leaker got a benefit.
Martoma’s lawyers also argue that the trial judge erred by excluding testimony about the trades from SAC Capital founder Steven A. Cohen, who was questioned by the Securities and Exchange Commission. Cohen told the SEC his firm sold its holdings in Wyeth based on the advice of a former SAC trader and sold Elan because Martoma told him he no longer felt comfortable with the investment.
“To exclude the Cohen testimony here is like having Hamlet without the prince,” Martoma’s lawyer, Paul Clement, told the appeals court.
Assistant U.S. Attorney Arlo Devlin-Brown disagreed, saying there was “clearly a commercial and pecuniary relationship” between Martoma and the tipster, Sidney Gilman, a former university of Michigan neurologist who was chairman of the safety monitoring committee for bapineuzumab, the Alzheimer’s drug being developed by Elan and Wyeth.
Gilman, who wasn’t charged, told jurors at trial that Martoma pressed him to disclose secrets about the drug trial during dozens of paid consultations arranged by Gerson Lehrman Group Inc., an expert-networking firm. Prosecutors said Martoma traded on Gilman’s tips, making $275 million for SAC in profits and losses avoided and a bonus of more than $9.3 million for himself.
Martoma, who also traded on information from another doctor, got the longest sentence of the former SAC Capital employees to be convicted. Cohen wasn’t charged with wrongdoing.
SAC Capital pleaded guilty to wire fraud and securities fraud in 2013 and paid a record $1.8 billion fine to resolve U.S. claims over insider trading. It changed its name to Point72 Asset Management LP and agreed to manage only Cohen’s money.
Martoma fainted in the front yard of his Boca Raton, Florida, home when confronted by two agents from the Federal Bureau of Investigation in 2011. He refused to cooperate with the government’s investigation of Cohen and his firm.Clement told the appeals court that jurors found Gilman provided tips to Martoma out of friendship, and not because he was paid tens of thousands of dollars to consult with him.
As part of its questions, the panel asked whether the failure of the trial judge to properly instruct jurors on the law affected the verdict. The lawyers disagreed.
The case is U.S. v. Martoma, 14-03599, U.S. Court of Appeals for the Second Circuit (Manhattan).
– Bloomberg News
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