DealBook: Former SAC Analyst Freed on Bail in Insider Case

John Marshall Mantel for The New York TimesMathew Martoma, center, a former trader at SAC Capital Advisors, appeared in Federal District Court in Manhattan on Monday.

Mathew Martoma, the former SAC Capital Advisors employee at the center of what the government calls the most lucrative insider trading case ever brought, appeared in Federal District Court in Manhattan on Monday to face the charges against him.

Federal prosecutors have accused Mr. Martoma, 38, of using secret information about a drug trial to help SAC gain profits and avoid losses totaling $276 million. Three former SAC employees have already pleaded guilty to unrelated illegal trading at the firm, but Mr. Martoma’s case is the first time that the government has aimed to connect questionable trades to Steven A. Cohen, the billionaire founder of SAC, one of the world’s most powerful hedge funds.

Mr. Cohen has not been accused of any wrongdoing and, through his spokesman, has said that he acted appropriately at all times. Prosecutors have not said that Mr. Cohen was in possession of any inside information related to Mr. Martoma’s trades.

Related Links

• Documents: Insider Charges for Ex-Trader at Hedge Fund
• Graphic: Another Insider Scheme, Among the Largest Yet
• Video: Trying to Build a Case Against a Wall St. Player
• Henning: In SAC Capital Case, a New Type of Deal

Mr. Martoma appeared before a United States magistrate judge, James L. Cott. Lean and square-jawed with close-cropped hair, Mr. Martoma sat at a table flanked by his lawyers, with his wife, Rosemary, seated in the spectators’ gallery. Judge Cott informed Mr. Martoma of his rights as a criminal defendant and freed him on $5 million bail. His next court appearance is scheduled for Dec. 26.

F.B.I. agents arrested Mr. Martoma at his home in Boca Raton, Fla., on Nov. 20 at 6:30 a.m. The government charged him via a criminal complaint instead of using a grand jury indictment, a tactic that suggests prosecutors are trying to secure Mr. Martoma’s cooperation in its investigation of Mr. Cohen and SAC.

Charles A. Stillman, Mr. Martoma’s lawyer, declined to comment after the hearing. Last week, he said that he expected his client to be fully exonerated.

The government says that Mr. Martoma was fed confidential data about clinical trials for an Alzheimer’s drug being jointly developed by Elan and Wyeth. His tipster, according to prosecutors, was Dr. Sidney Gilman, a neurology professor at the University of Michigan Medical School. Elan and Wyeth hired Dr. Gilman, 80, to oversee the trial and present the results at a medical conference.

Dr. Gilman has secured a nonprosecution agreement with the government, meaning he will not be charged in the case. He has also agreed to testify, said a person familiar with the case, giving the government another pressure point in its bid to gain Mr. Martoma’s cooperation.

Steve Marcus/ReutersSteven A. Cohen, founder of SAC Capital Advisors. Several former SAC workers have been accused of breaking the law.

Mr. Martoma joined SAC, which is based in Stamford, Conn., in 2006. A summa cum laude graduate of Duke University with a degree in biomedicine, ethics and public policy, Mr. Martoma graduated from business school at Stanford University before pursuing a career as a health care analyst on Wall Street.

Prosecutors say that Mr. Martoma and Mr. Cohen worked closely together in accumulating large blocks of Elan and Wyeth shares for SAC. But the fund did an about-face, selling its entire position in both stocks — and made a large negative bet against the companies — after Dr. Gilman told Mr. Martoma about problems with the drug trial, according to the complaint.

In 2008, the year of the Elan and Wyeth trades, SAC paid Mr. Martoma a $9.4 million bonus. But in early 2010, the firm fired Mr. Martoma for poor performance. In an internal e-mail discussing his abilities, an SAC executive called Mr. Martoma a “one trick pony.”

Before Monday morning’s hearing, Mr. Martoma and his wife, who have three young children, appeared relaxed, smiling and chatting over breakfast in the courthouse cafeteria with Mr. Stillman and his law partner, James A. Mitchell. As they left the building a few hours later, throngs of photographers surrounded them as they fought their way into a town car and drove off.

Article source: http://dealbook.nytimes.com/2012/11/26/former-sac-analyst-freed-on-bond-in-insider-case/?partner=rss&emc=rss