Monday, 15 September 2014
Last updated 3 days ago
Nov 26 2012 | 2:58pm ET
Former SAC Capital Advisors portfolio manager Mathew Martoma remains free on bail after making his first appearance in New York federal court on charges he earned the hedge fund $276 million in the "most lucrative" insider-trading scheme in history.
A 13-minute meeting this morning saw Martoma's $5 million bond confirmed. Martoma was arrested on Tuesday in Florida and freed on the same day under those bail conditions.
Martoma did not enter a plea at today's hearing, although his lawyer has said he is confident his client will be exonerated.
According to prosecutors and the Securities and Exchange Commission, Martoma made illegal trades in two pharmaceutical companies after learning confidential information about Alzheimer's drug trials from the man who lead their safety committee. Martoma connected with the University of Michigan neurology professor, Sidney Gilman, through expert-network Gerson Lehrman Group.
"The hedge fund built up over time a massive position in [Elan Corp. and Wyeth LLC] stock," U.S. Attorney Preet Bharara said. "The hedge fund built up this position, even though it was vocally opposed by several others at the hedge fund who were worried about the risk of that investment. Martoma was the only person at the hedge fund who was recommending establishing such a large position in Elan and Wyeth based on that drug."
When the news turned bad, Martoma "had to do a spectacular about-face, because he understood that with these negative results looming, the hedge fund's massive $700 million stake had become a terrible bet," Bharara continued. "Overnight, Martoma went from bull to bear as he tried to dig his hedge fund out of a massive hole."
While SAC founder Steven Cohen was not accused of any wrongdoing in the case, prosecutors and the SEC said Cohen traded on the shares in question on the recommendation of Martoma.
Martoma worked at SAC's CR Intrinsic division. A graduate of Duke University and Stanford Business School who had worked at the National Human Genome Research Institute and who had studied at Harvard Law School, Martoma was seen as a new type of hire for SAC, which was better known for testosterone-fueled, hard-charging traders, The New York Times reports.
Martoma, by contrast, was "brainy and unassuming," according to the Times. CR Intrinsic was set up as the research-heavy affiliate of SAC. He joined the firm from Sirios Capital Management and covered healthcare stocks, a favorite of Cohen.
Martoma began speaking with Gilman in 2006 and eventually spoke with him 42 times. In 2008, Gilman allegedly sent Martoma a presentation he planned to give laying out disappointing results from the drug tests, allowing Martoma, who had previously been very bullish on Elan and Wyeth, to turn against the companies and call on SAC to sell.
In the wake of the Elan and Wyeth trades from 2006 through 2008, Martoma's luck ran out. He lost money for two years and fell victim to SAC's cut-throat competition, getting fired in May 2010 after another employee noted that he was a "one-trick pony with Elan." But not before he received a $9.38 million bonus for that one trick.
Gilman, who is cooperating with prosecutors, received more than $100,000 for his work with SAC. His lawyer said that he expects to settle with the SEC "in short order."
Martoma faces up to 20 years in prison if he is convicted.
Aug 25 2014 | 11:21am ET
As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…
The Federal Reserve keeps baby-stepping toward a “normalization” of monetary policy. But just what is normal?