Date: 09-08-2014

Case Style: United States of America v. Mathew Martoma

Case Number: 1:12-cr-00973-PGG

Judge: Paul G. Gardephe

Court: United States District Court for the Southern District of New York (New York County)

Plaintiff's Attorney: Arlo Devlin-Brown, Eugene Edward Ingoglia and Christine Ingrid Magdo

Defendant's Attorney: Roberto Braceras, John Farley, Derek Cohen, Larkin Morton, Dan Roeser and Richard Mark Strassberg

Description: New York, NY - Preet Bharara, the United States Attorney for the Southern District of New York, announced that MATHEW MARTOMA, a former portfolio manager of CR Intrinsic Investors, LLC, a division of SAC Capital, was sentenced today in Manhattan federal court to nine years in prison based on his participation in the most lucrative insider trading scheme ever charged, involving approximately $275 million in illegal profits and avoided losses. Martoma was convicted of one count of conspiracy to commit securities fraud and two counts of securities fraud after a four-week jury trial presided over by U.S. District Judge Paul G. Gardephe in January and February of this year.

Manhattan U.S. Attorney Preet Bharara said: “SAC Capital portfolio manager Mathew Martoma received a bonus of more than $9 million for the $275 million he made for his hedge fund through the most profitable insider trading scheme ever charged. Today, Martoma was sentenced to nine years in prison, and financial penalties that 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.”

According to the allegations in the Superseding Indictment filed in Manhattan federal court, other court documents, and the evidence presented at trial:

During the period of the insider trading scheme, MARTOMA was an SAC Capital portfolio manager responsible for investment decisions in public companies in the health care sector, including pharmaceutical companies Elan and Wyeth, that were involved in the development of experimental drugs to combat Alzheimer’s Disease. At the time, scientists and investors alike were awaiting the results of a clinical trial being conducted by Elan and Wyeth of a drug called bapineuzumab, which offered a novel but untested approach to the treatment of Alzheimer’s Disease (the “Drug Trial”).

In order to obtain material non-public information (the “Inside Information”) about the Drug Trial, MARTOMA, shortly after starting his employment at SAC Capital in the summer of 2006, began using expert networking firms to try to speak to doctors involved in the Drug Trial who had access to confidential information. Through these efforts, MARTOMA arranged dozens of paid consultations with one of the Drug Trial’s principal investigators, Dr. Joel Ross, and the chairman of the Drug Trial’s Safety Monitoring Committee (“SMC”), Dr. Sidney Gilman. Through an exploitation of MARTOMA’s personal and financial relationships with these doctors, MARTOMA was able to obtain Inside Information about the Drug Trial.

The information that MARTOMA initially received from Dr. Ross included anecdotal reports concerning patients under the care of Dr. Ross. The Inside Information MARTOMA initially received from Dr. Gilman included generally positive safety data about which Dr. Gilman was aware through his chairmanship of the SMC. In fact, Martoma arranged a paid consultation shortly after each and every SMC meeting in part to ensure that he would be among the first to learn if any substantial safety issues were emerging from the Drug Trial that could lead to the cancellation of the Drug Trial and decreases in the price of Elan and Wyeth stock. Based in part on the positive safety information, MARTOMA purchased and held shares of Elan and Wyeth, and further recommended that the owner of the Hedge Fund (the “SAC Capital Owner”) purchase and hold Elan and Wyeth securities, which the SAC Capital Owner did. By the spring of 2008, SAC Capital held approximately $700 million worth of Elan and Wyeth equity securities.

Elan and Wyeth planned to release the full results of the Drug Trial to the investing public at the International Conference on Alzheimer’s Disease (the “ICAD Presentation”) on July 29, 2008. Dr. Gilman was selected to present the results on behalf of both drug companies and was “unblinded” to the full safety and efficacy results of the drug trial on July 15, 2008. Until that time, Dr. Gilman had only been privy to the safety results of the Drug Trial. On July 17, 2008, Dr. Gilman received a draft PowerPoint presentation that had been created for the ICAD meeting and that was marked “Confidential, Do Not Distribute.” The draft PowerPoint presentation showed that the Drug Trial results were negative, particularly in comparison with market expectations.

Later on July 17, 2008, MARTOMA called Dr. Gilman from his home and spoke to Dr. Gilman in detail about the negative news in the draft PowerPoint presentation during a phone call that lasted one hour and forty-five minutes. Then, on Saturday, July 19, 2008, MARTOMA flew roundtrip from New York City to Detroit, Michigan, to meet Dr. Gilman in his University of Michigan office and review the negative news in the draft PowerPoint presentation further.

The next day, Sunday, July 20, 2008, MARTOMA sent the SAC Capital Owner an email in which he wrote that “…It’s important [that we speak,]” which they did, for approximately 20 minutes. The SAC Capital Owner then directed SAC Capital to sell Elan and Wyeth securities prior to the ICAD Presentation. Over the next seven days, SAC Capital liquidated its entire equity position in Elan and almost all of its equity position in Wyeth – a total of 17.7 million shares worth approximately $700 million. SAC Capital also shorted Elan and Wyeth by approximately 7.75 million shares. This trading represented over 20% of the reported U.S. trading volume in Elan and 11% of the volume in Wyeth.

MARTOMA also received information about the ICAD presentation from Dr. Joel Ross. In particular, on the evening of July 28, 2008, after Dr. Ross had been unblinded to the Drug Trial results at a dinner for Principal Investigators, Dr. Ross met with MARTOMA in a hotel lobby to discuss the negative results. To the surprise of Dr. Ross, MARTOMA already seemed to know of the Drug Trial results.

The day after the ICAD presentation, Elan stock closed approximately 42% lower and Wyeth shares fell approximately 11%.

Through this trading activity SAC Capital earned profits and avoided losses of approximately $275 million.

* * *

In imposing the nine-year prison sentence, Judge Gardephe described Martoma’s conduct as “deeply corrosive to our financial markets,” generating cynicism among investors.

MARTOMA, 40, was also ordered to forfeit to the United States $9.3 million, representing the bonus he earned through the insider trading, as well as his interests in his Florida home and several bank accounts. Judge Gardephe also imposed a term of three years of supervised release following Martoma’s completion of this sentence.

Mr. Bharara praised the efforts of the FBI and also thanked the SEC for its assistance in the investigation. He added that the investigation is continuing.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Arlo Devlin-Brown and Eugene Ingoglia are in charge of the prosecution. Assistant U.S. Attorney Christine I. Magdo of the Office’s Money Laundering and Asset Forfeiture Unit is in charge of the forfeiture aspects of the case.

Outcome: See above

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Defendant's Experts:

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