SAC portfolio manager Mathew Martoma has been convicted of insider trading after a Manhattan jury determined Martoma was guilty of two counts of securities fraud and one count of conspiracy. Martoma is looking at up to 45 years in prison. Currently, Martoma is free on bail pending his sentencing.
In November 2012, Martoma was working at the SAC subsidiary CR Intrinsic Investors when he was charged and arrested. The Department of Justice said at the time that Martoma was a principle player in what looked to be the most lucrative insider trader scheme in history. Prosecutors stated that the portfolio manager shorted stocks using negative drug trial information. The confidential info involved pharmaceutical companies like Wyeth and Elan Corporation. Between the summer of 2006 and July 2008, Martoma capitalized on the opportunity to exit those positions and avoid losses of $276 million.
The jury verdict also provided U.S. Attorney Preet Bharara with an impressive track record of 79–0 for insider trading convictions. In a statement, Bharara said, “As the jury unanimously found, Mathew Martoma cultivated and purchased the confidence of doctors with secret knowledge of an experimental Alzheimer’s drug, and used it to engage in illegal insider trading. Martoma bought the answer sheet before the exam — more than once — netting a quarter billion dollars in profits and losses avoided for SAC, as well as a $9 million bonus for him. In the short run, cheating may have been profitable for Martoma, but in the end, it made him a convicted felon, and likely will result in the forfeiture of his illegal windfall and the loss of his liberty. Mathew Martoma becomes the 79th person convicted of insider trading after trial or by guilty plea in this District in the last four years.”
SAC Capital was also criminally indicted on charges of insider trading. Run by Steve Cohen, the Stamford Connecticut based hedge fund was charged by federal prosecutors with “with criminal responsibility for insider trading offenses committed by numerous employees and made possible by institutional practices that encouraged the widespread solicitation and use of illegal inside information.”
In November 2012, SAC Capital pled guilty to the criminal insider charges. They agreed to pay a fine of $1.8 billion. The hedge fund is currently in the process of finalizing its corporate restructuring. When the smoke clears, SAC Capital will have a new name and new management. The firm will no longer be allowed to maintain outside capital. Lastly, it will only be allowed to operate as a family office fund.