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Trial starts for former SAC analyst

  • Article by: PETER LATTMAN
  • New York Times
  • November 26, 2012 - 7:52 PM

 

NEW YORK -- Mathew Martoma, the former SAC Capital Advisors employee at the center of what the government calls the most lucrative insider trading case ever brought, appeared in U.S. District Court in New York City on Monday to face the charges against him.

Federal prosecutors have accused Martoma, 38, of using secret information about a drug trial to help SAC gain profits and avoid losses totaling $276 million. Three former SAC employees have pleaded guilty to unrelated illegal trading at the firm, but Martoma's case is the first time the government has aimed to connect questionable trades to Steven A. Cohen, the billionaire founder of SAC, one of the world's most powerful hedge funds.

Cohen has not been accused of any wrongdoing and, through his spokesman, has said that he acted appropriately at all times. Prosecutors have not said that Cohen was in possession of any inside information related to Martoma's trades.

Martoma appeared before U.S. Magistrate Judge James L. Cott.

Cott informed Martoma of his rights as a criminal defendant and freed him on $5 million bail. His next court appearance is scheduled for Dec. 26.

FBI agents arrested Martoma at his home in Boca Raton, Fla., on Nov. 20 at 6:30 a.m. The government charged him via a criminal complaint instead of using a grand jury indictment, a tactic that suggests prosecutors are trying to secure Martoma's cooperation in its investigation of Cohen and SAC.

Charles A. Stillman, Martoma's lawyer, declined to comment after the hearing. Last week, he said that he expected his client to be exonerated.

The government says that Martoma was given confidential data about clinical trials for an Alzheimer's drug being jointly developed by Elan and Wyeth. His tipster, according to prosecutors, was Dr. Sidney Gilman, a neurology professor at the University of Michigan Medical School. Elan and Wyeth hired Gilman, 80, to oversee the trial and present the results at a medical conference.

Gilman has secured a nonprosecution agreement with the government, meaning he will not be charged in the case. He has also agreed to testify, said a person familiar with the case, giving the government another pressure point in its bid to gain Martoma's cooperation.

Martoma joined SAC, based in Stamford, Conn., in 2006. A summa cum laude graduate of Duke University with a degree in biomedicine, ethics and public policy, Martoma graduated from business school at Stanford University before pursuing a career as a health care analyst on Wall Street.

Prosecutors say that Martoma and Cohen worked closely together in accumulating large blocks of Elan and Wyeth shares for SAC. But the fund did an about-face, selling its entire position in both stocks -- and made a large negative bet against the companies -- after Gilman told Martoma about problems with the drug trial, according to the complaint.

In 2008, the year of the Elan and Wyeth trades, SAC paid Martoma a $9.4 million bonus. But in early 2010, the firm fired Martoma for poor performance. In an internal e-mail discussing his abilities, an SAC executive called Martoma a "one trick pony."

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