S.A.C. Exec Gets Nine Years for Inside Trading

     MANHATTAN (CN) – Neither the philanthropy, devoted fatherhood or previously clean criminal record of former S.A.C. Capital executive Mathew Martoma dissuaded a federal judge on Monday from sentencing him to nine years in prison, more time than prosecutors requested, for a $276 million inside-trading scheme involving an Alzheimer’s drug.
     “I cannot and will not ignore that the gain here is hundreds of millions more than any previous insider trading case ever seen,” U.S. District Judge Paul Gardephe said in the ceremonial courtroom, which was filled with reporters, lawyers and Martoma’s supporters.
     Martoma, who will head to federal prison in November, “cultivated corrupt relationships” with two doctors over the course of two years, Gardephe said.
     Dr. Sidney Gilman, a neurology professor at University of Michigan Medical School, and Dr. Joel Ross, a New Jersey geriatrician, testified at Martoma’s trial this year that they tipped off the executive about the side effects of the Alzheimer’s drug bapineuzumab.
     The inside information culminated in an advanced peak at the “disastrous” results of the clinical trial, Gardephe said.
     Martoma allegedly relayed the results to S.A.C. head Steven Cohen, who massively shorted the securities in the drug’s joint developers Elan and Wyeth securities.
     In Gardephe’s words, Martoma “put all of his eggs in the Elan and Wyeth basket,” hoping to make “one big score.”
     “His plan worked, but now he has to deal with the fallout,” the judge said.
     Martoma’s lawyer Richard Strassberg, of the Manhattan-based firm Goodwin Procter, LLP, said that even eight years in prison that the probation department had recommended would be “severe.”
     Roughly 70 percent of insider trading convictions in the Southern District of New York result in a two-to-three-year sentence, and 93 percent are below 6½ years, he said.
     Strassberg argued that his client deserved the lower end of the spectrum to keep him in the lives of his wife, three children and friends, who wrote 140 letters on his behalf urging the judge for leniency.
     Martoma and his wife, who sat in the front row for the hearing, have been married for a decade, and their children are between the ages of 5 and 9. The government’s recommended sentence of eight years would mean that Martoma could only see his children “inside the cold walls of a prison,” Stassberg said.
     Gardephe said that the letters he read show Martoma as an “extraordinary father, friend and son.”
     “Like all of us, of course, he is a mixture of good and bad,” he said.
     But Martoma’s reaction to his expulsion from Harvard Law School revealed the darker shades of his character, he added.
     Martoma forged a law school transcript to secure a clerkship with federal judges and falsified evidence considered at Harvard’s disciplinary proceedings against him, prosecutors revealed in a pretrial motion.
     While his attorneys objected to putting these incidents on the public record, Gardephe agreed last week that prosecutors initially raised the issue for a legitimate purpose. The government ultimately decided not to broach the topic at trial, but both parties raised this history at sentencing.
     Defense attorney Strassberg argued that the very public airing of this “nightmarish episode” showed that he already experienced severe punishment.
     “For that incident, he has been humiliated and shamed in front of his family,” Strassberg said.
     Prosecutor Devlin-Brown drew what he called an “uncanny parallel” between Martoma’s law school discipline and his financial crimes.
     In both cases, Martoma had been “tempted to lie” and then “cover it up in a rather clumsy fashion,” the prosecutor said.
     Gardephe agreed that there existed “a connection between what happened there and what happened at S.A.C.”
     “I cannot find what happened at S.A.C. aberrant conduct,” he said. “Rather, it is a part of his character.”
     Both the prosecutor and the judge emphasized the need to send a message to Wall Street.
     “Financial industry professionals are making calculations every day based on risk and reward,” Devlin-Brown said.
     In such an environment, Gardephe said, the risk of a two-to-three-year sentence, customary in insider trading cases in the district, “could become palatable” when the potential rewards hit well above seven figures.
     His wife wiped her eyes with a tissue after Gardephe announced the sentence, and the couple quickly left the courtroom with their attorneys.
     Martoma must report to prison on Nov. 10.

%d bloggers like this: