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HindustanTimes Thu,17 Apr 2014

Insider trading: Indian American faces 45 yrs in jail

Yashwant Raj, Hindustan Times  Washington, February 07, 2014
First Published: 09:43 IST(7/2/2014) | Last Updated: 00:52 IST(8/2/2014)

A Manhattan jury on Thursday convicted Indian American portfolio manager Mathew Martoma of insider trading in a case described as the most lucrative scam ever busted.

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His firm, the once-iconic-but-now-defunct hedge fund SAC Capital made approximately $275 million in profits and avoided loses based on insider information obtained by him.

The trade earned him a one-time bonus of $9 million.

Read: Indian-origin hedge fund manager indicted in insider trading

Martoma, 39, was convicted of one count of conspiracy to commit a fraud and two counts of securities fraud, which could in all get him a maximum jail term of 45 years, with fines.

“In the short run, cheating may have been profitable for Martoma, but in the end, it made him a convicted felon” said Manhattan US attorney Preet Bharara, who prosecuted the case.

Martoma was born Ajai Mathew Mariamdani Thomas in Michigan to parents from Kerala. Martoma — from Mar Thoma Syrian Church —  is an adopted family name.

Read: Indian analyst admits to insider trading in US

As a portfolio manager at SAC starting in 2006, Martoma cultivated two physicians connected with a search for Alzheimer cure by Elan Corporation and Wyeth.

The doctors, who cooperated with investigators later, kept him updated with the latest on the drug trial, passing on confidential information in clear contravention of rules.

The drug trials were closely watched not only by the industry but also the market, with the stocks of the two companies involved in the trial costly tied to the outcome.

Starting later 2007, SAC Capital started buying huge amounts of Elan and Wyeth shares based on a tip Martoma got from one of the doctors that the drugs were safe.

Read: Preet Bharara nets new high profile case

“By the spring of 2008, SAC Capital held approximately $700 million worth of Elan and Wyeth equity securities,” said a statement from Bharara’s office on Thursday.

By the middle of 2008 the trials were spewing nothing but bad news. The drug being tried on the volunteers — bapineuzumab — proved to be a dud, completely ineffective.

Martoma first heard of it around July 17, 2008, from one of his two sources, who, fortuitously for him, had also been entrusted with announcing the failure of the trial.

Read: India-born Preet Bharara brings down another Wall Street giant

After personally inspecting the findings as prepared for the presentation, Martoma told SAC Capital to offload Elan and Wyeth shares in anticipation of the coming crash.

Over the next seven day, SAC offloaded almost its entire stock of Elan and Wyeth shares, which closed 42% and 11% lower respectively the day the findings were announced.

SAC made $275 million in profits and avoided losses. That, however, proved to be his best deal ever. Martoma lost money the next year. And in September, 2010, he was fired, as a “one-trick pony”, according to Bloomberg.

Father of three children, Martoma now faces a maximum of 45 years in jail and fines that is bound to wipe out any money he made from that deal, and others, if at all.

Read: Rajat Gupta challenges $13.9 mln insider trading fine

Read: Insider trading: Indian held in MS-Yahoo deal

Read: Rajat Gupta ordered to pay Goldman $6.2mn

Was it coming?

Harvard Law School threw Mathew Martoma out in 1999 for doctoring his report card — to enhance his employability — and then for further fraud to back up the earlier fraud.

Martoma was accepted at the Stanford business school, one of the best in the country, in 2003 with changed name — it’s still not clear how he pulled that off.
 
And he was in SAC in 2006, plotting his own downfall.


Others on Bharara's list

Sri Lankan born Raj Rajaratnam, owner of Galleon hedge fund

Indian-born Rajat Gupta, former McKinsey head and director at Goldman Sachs and P&G

SAC Capital boss Stephen Cohen

Indian diplomat Devyani Khobragade, for a case completely alien to Bharara's acclaimed hunt for Wall Street felons

Read: Have got the world's greatest job, says US legal star Bharara

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