Former SAC Capital Advisors LP portfolio manager Mathew Martoma was found guilty by a jury on all three counts he was charged with (two securities fraud, one conspiracy). The trial took place in Manhattan Federal Court and Martoma faces up to 45 years in prison for all counts combined.
Prosecutors alleged that Dr. Sid Gilman, the government’s main witness, tipped off Mr. Martoma to final drug-trial results in July 2008, more than a week before the public release. This warning of the bad test results allowed Martoma and SAC to liquidate a more than $700 million position in the drug companies Elan Corp and Wyeth Pharmaceuticals, who developed the experimental Alzheimer’s drug. The illegal trades were done as a result of this “early warning system” and allowed SAC to exit their position and short the stocks.
SAC Capital netted $275 million in profits in this large and lucrative insider-trading scheme. This scheme allowed SAC to avoid losses on trades with the drug companies. Elan is now part of Perrigo Co. and Wyeth is now part of Pfizer Inc. SAC was also charged criminally and pled guilty to criminal insider trading charges in November. They agreed to pay a $1.8 billion fine.
US Attorney Preet Bharara issued a statement after the verdict stating, “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.”