Corporate Nov 28, 2012
New York: Since the crackdown on insider trading began five years ago on Wall Street, there have been more than 70 arrests. Manhattan US Attorney Preet Bharara, who has won guilty convictions against high-profile Galleon Group billionaire Raj Rajaratnam and former Goldman Sachs director Rajat Gupta, is not resting on his laurels.
Bharara is now displaying fresh firepower by going after Steven Cohen, the billionaire art collector and founder of hedge fund giant SAC Capital. Bharara said Mathew Martoma, 38, a former portfolio manager for Cohen's SAC Capital Advisors, used an illegal tip on a clinical trial of an Alzheimer's drug to net $276 million for Cohen's fund.
Bharara said the profit of around a quarter of a billion dollars was the most any hedge fund ever netted from a single illegal tip.
Indian American Martoma, is the only one charged so far with helping SAC Capital make $276 million in illegal profits on shares of Elan Pharmaceuticals and Wyeth in July 2008, after getting inside tips related to clinical trial results of an Alzheimer's drug the two companies were developing. Martoma traded on the clinical trial data before it was made public which is illegal.
Martoma, the son of hard working Indian immigrants, studied at Harvard Law School and Stanford Business School. He shortened his name from Ajai Mathew Mariamdani Thomas to Mathew Martoma in 2003.
Cohen, 56, one of the most high-profile hedge fund titans in the world, has not been named in Bharara's charges filed against Mathew Martoma, who worked for him for four years, until 2010.
But it is no secret that Bharara's office is trying to persuade Martoma to turn against his ex-boss. The Daily Beast said prosecutors are hoping to lock up Cohen by persuading Martoma to do a "flip" and rat him out.
Martoma, faces up to 20 years in prison if he is found guilty unless he cuts a deal by giving prosecutors information on Cohen. The government has stepped up its scrutiny of SAC Capital in recent years and four former employees of the hedge fund firm have already pleaded guilty to other insider trading charges.
"Martoma was awarded a $9.8 million bonus by Cohen's firm, SAC, in 2008 for his part in the alleged scheme, but he was fired two years later for being what a company email described as a "one trick pony," supposedly because he failed to provide any other hot stock information. The dismissal would not seem to necessarily foster great loyalty to Cohen or SAC," saidThe Daily Beast.
Charles Stillman, a lawyer for Martoma, said he is "confident" his client will be fully exonerated. Martoma, who was arrested last week from his home in Florida, was released on Monday on a $5 million bail after a hearing at the Manhattan federal court. The next hearing is set for 26 December.
Also named in the SEC suit was Dr Sidney Gilman, 80, a professor at the University of Michigan Medical School, who was overseeing the clinical trials of the Alzheimer's drug for Elan and Wyeth. Gilman was not charged in the criminal complaint, having agreed with Bharara to testify against Martoma.
Bharara's office alleges that Martoma got "sneak peeks at drug data" before other investors via phone calls, e-mails and PowerPoint presentations from Gilman for $108,000.
By June 2008, SAC owned $700 million worth of Elan and Wyeth stock. On 17 July, Gilman told Martoma that he was going to give a negative presentation on the clinical trials on 29 July. Three days later, on 20 July, Martoma sent Cohen an e-mail saying "it's important" that they speak, which they did for about 20 minutes, prosecutors said.
Cohen then directed the hedge fund to sell Elan and Wyeth. The hedge fund also shorted Elan and Wyeth by 7.75 million shares.
The biggest hedge fund titan to be ensnared in Bharara's multiyear probe was Rajaratnam who was found guilty in October 2011 and was sentenced to 11 years in prison. Gupta is also a big trophy for Bharara in fighting white collar crime as the standard defendants in insider trading cases are traders and analysts on Wall Street.
The Galleon case was part of a federal initiative by Bharara's office and the Federal Bureau of Investigation in New York, codenamed "Perfect Hedge." Bharara played a key role in the largest mob roundup in recent FBI history by using wiretaps against the Gambino and Colombo crime families. The Galleon case is the crown jewel of Bharara's work to date and to collect those scalps, Bharara has, some say, played rough by using wiretaps and strong arm tactics he first employed against the mob.
Bharara, 42, who lives a quiet suburban life with his wife and three children, always wanted to be a trial lawyer.
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