Mathew Martoma may have the one thing prosecutors have been unable to find in their probe of SAC Capital Advisors LP: a direct link between founder Steven Cohen and insider trading. Having refused to cooperate, Martoma now faces trial for what the government claims was the biggest illegal trade in U.S. history.
Jury selection in the prosecution of the ex-SAC portfolio manager is set for Jan. 6, barring a last-minute plea deal. He is accused of benefitting the hedge fund by $276 million in trades of Wyeth and Elan Corp., using secret tips from a doctor supervising trials of an Alzheimer’s drug. The U.S. said SAC reversed a bullish stance on the drugmakers, liquidating a $700 million position and selling the stocks short a few days after a 20-minute phone call between Martoma and Cohen in July 2008.
Pressure on Martoma, 39, to cooperate with the probe included an approach by agents of the Federal Bureau of Investigation that made him faint in his own front yard, and an indictment unsealed in 2012 on the Friday before Christmas. A steady drumbeat of convictions of insider traders in the probe, including SAC portfolio manager Michael Steinberg last month, may have further ratcheted up the pressure ahead of the trial next week in Manhattan federal court.
“I think Martoma was the likeliest link to Cohen,” said Glenn Gitomer, a partner with the law firm McCausland Keen & Buckman in Radnor, Pennsylvania, who’s following the case. “Martoma’s the one with the 20-minute phone call. Depending on what happened, that either gets them there or doesn’t.”
Cohen, who hasn’t been charged, has said he did nothing wrong. Jonathan Gasthalter, a spokesman for SAC at Sard Verbinnen & Co., declined to comment on the Martoma trial.
“Mathew continues to fight the charges and is preparing for trial,” his lawyer, Richard Strassberg, said in an e-mail.
History suggests he may face an uphill battle. Prosecutors in the office of Manhattan U.S. Attorney Preet Bharara have filed insider-trading charges against 83 people and four entities -- all of them units of SAC -- in a six-year probe of fund managers, company insiders and expert networking firms.
In November, SAC agreed to plead guilty to securities fraud and end its investment advisory business as part of a record $1.8 billion settlement of the government’s investigation of insider trading at the firm. The agreement must be approved by a judge before it can take effect.
Bharara’s office has so far won 78 convictions, most of them through guilty pleas. No one has been acquitted of insider- trading charges in that time.
In the most recent trial in Manhattan federal court, a jury took less than two days to convict Steinberg Dec. 18 of using illegal tips on technology stocks from his former securities analyst, Jon Horvath, to make more than $1.4 million in illegal profits.