Indian-American hedge fund manager gets 9 years in jail

SAC-MARTOMA__2099042fFormer SAC Capital Advisors portfolio manager Mathew Martoma exits the U.S. District Court for the Southern District of New York with his wife Rosemary (right), following sentencing for insider trading, in Lower Manhattan on Monday.

Former SAC Capital portfolio manager Mathew Martoma jailed for his role in one of the “most lucrative” insider trading schemes ever.

An Indian-American portfolio manager has been sentenced in New York to nine years in prison involving $276 million and ordered to forfeit a $9.3 million bonus he earned through it.

Mathew Martoma (40) was sentenced in federal court in New York on Monday by U.S. District Judge Paul Gardephe, who ordered that he also forfeit his interests in his Florida home and several bank accounts as he described Martoma’s conduct as “deeply corrosive to our financial markets,” generating cynicism among investors.

The sentence, among the longest handed down for insider trading, was in line with what Manhattan’s top federal prosecutor Preet Bharara had sought ahead of the hearing.

The India-born federal attorney had described Martoma’s role in the insider trading scheme as “central” and sought a prison term of over eight years along with forfeiture of his bonus saying the sentence should be “commensurate with the seriousness of the offense conduct and the unprecedented ill-gotten gains that it generated”.

While handing down the sentence, Judge Gardephe said, “I cannot and will not ignore that the gain is hundreds of millions of dollars more than ever seen in an insider trading prosecution” adding that “there was nothing accidental about Martoma’s conduct or the gain realised”.

Martoma, a portfolio manager of CR Intrinsic Investors, a division of hedge fund behemoth SAC Capital, was convicted in February 2014 for collecting confidential information about a high-profile Alzheimer’s drug trial from two doctors and making profits and avoiding losses of $275 million for SAC Capital.

After the hearing, Mr. Bharara said in a statement that Martoma’s nine-year prison sentence and financial penalties will strip him of the ill-gotten millions in proceeds of his crime.

“Today’s sentence of a lengthy prison term is well-suited to the audacity of the illegal trading in this case. The long and short of Mathew Martoma’s trading is that he traded his liberty, his name and his time with his family for what in the end is nothing,” Mr. Bharara added.

Martoma sat silently throughout the hearing in Manhattan federal court as Gardephe handed down the sentence, which also includes three years of supervised release following Martoma’s completion of this sentence.

He was accompanied by his wife, Rosemary and some of his family members.

Martoma, a father of three, was convicted of one count of conspiracy to commit securities fraud and two counts of securities fraud after a four-week jury trial in January and February.

Just before the sentencing hearing, Judge Gardephe had ruled in a 25-page order that the probation department “properly concludes” that Martoma be sentenced to between 15 to 19 years because the “amount of illicit gain attributable to Martoma… is more than $200 million.”

Last week, Judge Gardephe had denied Martoma’s motion to acquit him and order a new trial saying that evidence in the case “overwhelmingly” showed that he is guilty of securities fraud.

The judge also rejected Martoma’s assertion that he should be granted a new trial because the jury had become biased against him after it was revealed during the case that he had been expelled from Harvard in 1999 for allegedly doctoring his law school transcript to try to gain a federal clerkship.

Mr. Bharara had alleged that Martoma’s entire success across his four years at SAC Capital was based on illegal insider trading. Days after beginning his employment at SAC Capital, Martoma began searching for doctors who would be willing to provide him access to confidential information about an Alzheimer’s disease drug trial conducted by Elan Pharmaceuticals and Wyeth Corporation.

Mr. Bharara said Martoma caused approximately $750 million worth of Elan and Wyeth securities to be traded based on the illegal inside information, netting profits and avoiding losses of $275 million for SAC Capital.

SAC had last year pleaded guilty to insider trading and agreed to pay $1.8 billion to settle the criminal and civil charges against it. It has since changed its name to Point72 Asset Management and now only manages the personal wealth of its founder Steven Cohen, who has not been criminally charged.

Martoma’s guilty verdict added to the unbroken record of 78 convictions secured by Mr. Bharara in his crackdown on insider trading on Wall Street.

Fifty eight of the 79 individuals have been sentenced, including prominent Wall Street executives like ex-Goldman director Rajat Gupta and billionaire hedge fund founder Raj Rajaratnam.

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