SAC Covering Accused Insider-Trader's Legal Bills

Dec 12 2012 | 12:04pm ET

SAC Capital Advisors is paying the legal fees of former portfolio manager Mathew Martoma, who faces insider-trading charges, even though Martoma was fired more than two years ago.

Fox Business reports that SAC is paying noted defense attorney Charles Stillman to defend Martoma, who faces fraud charges in what prosecutors have called the most "lucrative" insider-trading scheme in history. Martoma is accused of earning SAC some $276 million trading on confidential information about Alzheimer's disease drug trials; he faces decades in prison if convicted.

But Martoma isn't the government's main target: It's by now clear that the Securities and Exchange Commission hope to snare SAC founder Steven Cohen. While Cohen is not mentioned by name in either the criminal or civil cases against Martoma, he is referred to, and allegedly traded on Martoma's illegal advice. The SEC has warned SAC that a lawsuit is imminent, and media reports indicate that it hopes to sue Cohen personally, as well as the firm.

Prosecutors, meanwhile, seem to be measuring Cohen for an orange jumpsuit. A year before arresting him, the Federal Bureau of Investigation asked Martoma to cooperate in its probe of Cohen. The government's efforts to win Martoma's cooperation—cooperating witnesses have been key to the convictions of the likes of Galleon Group founder Raj Rajaratnam and former McKinsey & Co. chief Rajat Gupta—haven't abated, according to Fox.

"The government believes Steve Cohen produces above-market returns in his hedge fund because he trades on inside information," a lawyer involved in the investigation told Fox. "It's as simple as that."

But Martoma has so far refused their blandishments, despite the prison term hanging over his head. Prosecutors have yet to lose a jury verdict in their recent crackdown on insider-trading.

It is unclear whether Martoma's tight lips have anything to do with SAC's covering his legal bills; such an arrangement could have been part of his employment contract with the hedge fund. But Wayne State University law professor Peter Henning thinks there could be more afoot.

"I wouldn't be surprised if there is a joint-defense agreement or at least some agreement to share information," he told Fox. "At the very least SAC could get a heads-up on when and what he plans to cooperate on."


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