Ex-SAC Capital portfolio manager convicted of insider trading

PUBLISHED : Friday, 07 February, 2014, 2:32pm
UPDATED : Friday, 07 February, 2014, 2:32pm

A New York jury convicted a former portfolio manager for SAC Capital on Thursday of insider trading in the US government’s latest victory against the once-mighty hedge fund.

Mathew Martoma was found guilty of violating US securities laws with trades based on confidential testing data on prospective Alzheimer’s medications developed by pharmaceutical firms Elan and Wyeth.

A pair of doctors testified in the case that they had passed the confidential data, showing disappointing test results for the drugs, to Martoma.

SAC subsequently sold virtually all of its US$700 million investment exposure to the two companies, according to the government’s indictment.

When Elan and Wyeth finally disclosed the test results, their shares plummeted, and SAC avoided millions in potential losses.

In the short run, cheating may have been profitable for Martoma, but in the end, it made him a convicted felon
US Attorney Preet Bharara

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,” US Attorney Preet Bharara said.

“In the short run, cheating may have been profitable for Martoma, but in the end, it made him a convicted felon.”

Martoma’s conviction comes about six weeks after separate jury in New York convicted another former SAC portfolio manager, Michael Steinberg, of insider trading in technology stocks. Steinberg will be sentenced in April.

Besides the two criminal convictions, the government has won guilty pleas from six other former SAC employees.

SAC itself agreed to plead guilty and pay US$1.8 billion to settle a US criminal case against the firm based on the insider trading allegations.

But SAC and its founder, billionaire Steven A. Cohen, remain under investigation

Cohen also faces a civil suit by the Securities and Exchange Commission, which has sought to bar Cohen from the securities business for poor oversight of employees.