Martoma Sentenced to 9 Years for Insider Trading at SAC Capital

Federal prosecutors have long said that Mathew Martoma carried out one of the biggest insider trading schemes on record in 2008 when he was working as a portfolio manager at Steven A. Cohen's former hedge fund, SAC Capital Advisors. A federal judge on Monday afternoon will decide whether the magnitude of Mr. Martoma's illicit gains for SAC warrants one of the stiffest sentences yet in the federal government's long-running investigation into improper trading.

Prosecutors working for Preet Bharara, the United States attorney for the Southern District of New York, are seeking a prison sentence of eight years or more for Mr. Martoma, who was convicted in February by a federal jury in Manhattan. Mr. Martoma's lawyers have simply asked Judge Paul G. Gardephe to show mercy and sentence him to a significantly shorter term.

Hours before the sentencing hearing was scheduled to begin in a lower Manhattan courtroom, Judge Gardephe may have tipped his hand a bit on how many years he thinks Mr. Martoma should serve for making illegal trades in shares of two drug companies, Elan and Wyeth.

The judge, in a 25-page decision issued Monday morning, said it was appropriate for him to consider all of the $275 million in profits and avoided losses made both by Mr. Martoma and his former boss. Judge Gardephe noted that while prosecutors did not name Mr. Cohen as a co-conspirator, the evidence at trial proved that Mr. Martoma 'provided inside information to Cohen and this information was the basis for Mr. Cohen and SAC Capital's subsequent trades in Elan and Wyeth securities.'

Mr. Martoma and his lawyer had hoped to exclude Mr. Cohen's substantial trading to limit the amount of prison time he could eligible for under the federal sentencing guidelines.

In theory, Mr. Martoma could receive a minimum of 15 years in prison under those guidelines, but legal experts expect the sentence handed out by Judge Gardephe to be closer to the eight years recommended by the probation department for district court.

Mr. Martoma was convicted of using inside information about a clinical trial for an experimental Alzheimer's drug to help SAC make trades in shares of the two drug companies. The trades in Elan and Wyeth - which involved SAC's dumping large positions in both stocks ahead of the release of negative information about the clinical trial - took place over just a few days in July 2008.

Mr. Martoma, who is 40, has said that sentencing him to a long prison term will present an undue hardship on his wife, Rose, currently a nonpracticing physician, and their three young children. Mr. Martoma and his lawyers have argued that it is unfair for him to receive a long prison sentence for what is essentially a single incident of insider trading.

Prosecutors have countered that the number of trades is irrelevant because the improper trading helped SAC generate the $275 million in profits and avoided losses. The authorities also have noted in court filings that Mr. Martoma was expelled from Harvard Law School for altering his law school transcript several years before he began working for SAC.

The sentencing of Mr. Martoma will close another chapter in the federal government's investigation into Mr. Cohen and his hedge fund, which lasted for more than seven years. SAC was one of the most successful hedge funds before the firm pleaded guilty to insider trading and was forced by the government to stop managing money for outside investors. Federal prosecutors never charged Mr. Cohen with any wrongdoing, but he still faces a civil regulatory action that could permanently bar him from ever working again in the securities industry.

In pleading guilty, SAC paid $1.2 billion in fines and penalties to federal prosecutors. The firm also paid a little more than $600 million in fines and restitution to the Securities and Exchange Commission.

Mr. Martoma is the eighth trader or analyst to work for Mr. Cohen to either be convicted at trial of insider trading or plead guilty to charges of improper trading.

Over the course of Mr. Martoma's trial, Mr. Cohen's name came up frequently during the proceeding even though he never made an appearance. The testimony at trial - some of it provided by some of Mr. Cohen's closest associates at the firm - revealed that Mr. Cohen took great interest in Mr. Martoma's sudden change of heart on the reliability of the experimental drug in July 2008. Mr. Cohen, it was revealed, personally oversaw the trading in both Mr. Martoma's accounts at SAC as well as his own and directed one of the firm's top traders to keep the selling of shares in Wyeth and Elan a secret at the firm.

Mr. Cohen's hands-on attention to Mr. Martoma's trading factored into the last-minute ruling from Judge Gardephe.

Mr. Cohen, 58, has since closed down his hedge fund, which managed more than $14 billion at one point last year, and reconfigured it as a family office that manages about $10 billion of his own money. The new firm, Point72 Asset Management, with about 850 employees, has lost several key employees over the last several months but remains highly profitable.

Yet even with that last-minute ruling from Judge Gardephe, Mr. Martoma and his legal team, led by Richard Strassberg, a partner with Goodwin Procter, were not done battling with prosecutors.

Both sides submitted a flurry of legal papers over the last few days over just how much of the $9.38 million bonus Mr. Martoma earned while working at SAC in 2008 should be forfeited to the federal government. Mr. Martoma's lawyers contended only the $6.5 million he actually received should be subject to forfeiture - not the $2.9 million deducted to pay taxes. But prosecutors said that Mr. Martoma should have to turn over the entire gross sum.

Still, the feuding over Mr. Martoma's bonus may not be done. In a footnote to a Sept. 5 court filing, Mr. Strassberg suggested his client's wife might bring an 'ancillary proceeding' to assert her financial interest in the couple's mansion in Boca Raton, Fla.

Mr. Strassberg has earlier indicated his client is likely to appeal his conviction.

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