NEW YORK (AP) — A former SAC Capital Advisors portfolio manager was convicted Thursday of helping his company earn more than a quarter billion dollars illegally through trades based on secrets about the testing of a potential breakthrough Alzheimer's drug.
The verdict capped a three-week trial that featured testimony from two prominent doctors who confessed to spilling secrets to Mathew Martoma during lucrative consultations. When prosecutors announced the case in November 2012, they said it may be the most lucrative insider trading scheme of all time.
Martoma watched the jury without expression as the jury forewoman announced he was guilty of two counts of securities fraud and conspiracy to commit securities fraud. Tears streamed down the face of his wife, Rosemary, whose hands were folded on her yellow dress. No sentencing date was set.
Martoma's lawyer, Richard Strassberg, said afterward they were disappointed and planned to appeal. Jurors declined to comment outside the Manhattan courthouse shortly before Martoma descended its long staircase, tightly clutching his wife's hand.
In a statement, U. S. Attorney Preet Bharara noted Martoma was the 79th person convicted in a stream of insider trading cases over the last four years. He compared Martoma's actions to buying an answer sheet before an exam.
"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," he said. "In the short run, cheating may have been profitable for Martoma, but in the end, it made him a convicted felon."
The verdict came just weeks after another jury convicted former SAC Capital portfolio manager Michael Steinberg on insider trading charges.
The Martoma trial contained frequent mentions of SAC Capital's billionaire founder, Steven A. Cohen. Strassberg said in his closing argument Monday that Cohen was the real target of investigators. He said his client was victimized by the testimony of doctors who traded their credibility for plea deals that left them beholden to the government.
He said the doctors learned "just how frighteningly scary it can be if you get in the way of a government investigation that's targeting someone like Steve Cohen."
Sidney Gilman, an 81-year-old former professor of neurology at the University of Michigan Medical School, testified he gave Martoma secret results of the drug trial sponsored by drug makers Elan Corp. and Wyeth nearly two weeks before they were publicly announced.
Once one of the world's top Alzheimer's experts, Gilman said he was charmed by Martoma, 39, of Boca Raton, Fla., who seemed more knowledgeable about his work than hundreds of other financial professionals who paid Gilman more than $1 million over several years for consultations.
Assistant U.S. Attorney Arlo Devlin-Brown told the jury that after the doctor showed Martoma the test results in one of 43 consultations the pair had, Martoma sent Cohen an early morning email asking: "Is there a good time to catch up with you this morning? It's important." A half hour later, they spoke for 20 minutes on the phone.
The next day, Devlin-Brown said, Martoma and SAC Capital began selling all their shares in Elan and Wyeth and building a short position that would make millions of dollars when the stock of both companies plummeted following the public announcement of the drug trial's results. The government said the trades on both ends earned $275 million in profits, enough to score a $9.3 million bonus for Martoma.
"Ladies and gentlemen, Mr. Martoma, though all of this circumstantial evidence, has been caught with his hand deep inside the cookie jar, and defense counsel wants you to think that maybe he was just putting the cookie back," Devlin-Brown said in his closing.
Strassberg told jurors Gilman's "story at its heart makes no sense" because his memory was flawed when he met with Martoma in 2008 while he was undergoing chemotherapy for successful cancer treatments.
Another doctor, Joel Ross, testified he also gave Martoma secrets about the Alzheimer drug test.
SAC Capital pleaded guilty in November to fraud charges and agreed to pay $1.8 billion to settle charges that it allowed, if not encouraged, insider trading for more than a decade.
Cohen has not been criminally charged, but the Securities and Exchange Commission has accused him in a civil action of failing to prevent insider trading at the company, which he founded in 1992 and bears his initials. Cohen has disputed the allegations.
In a statement after the verdict, FBI Assistant Director George Venizelos said a "competitive advantage gained through superior research and analysis is one thing. Cheating is another matter altogether."