U.S. charges ex-SAC manager in $276 million insider scheme

Tue Nov 20, 2012 6:04pm EST
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By Emily Flitter and Basil Katz

NEW YORK (Reuters) - U.S. prosecutors on Tuesday charged a former SAC Capital employee with insider trading in a series of transactions that hedge fund titan Steven A. Cohen had personally signed off on.

In what they called "the most lucrative" insider-trading scheme ever, prosecutors alleged that Mathew Martoma helped Cohen's firm avoid losses and reap profits totaling $276 million in the summer of 2008 by using insider tips he got from a doctor about Elan Corp and Wyeth LLC.

Martoma is the fifth person associated with SAC Capital, one of the most widely followed and influential hedge funds, to be charged with insider trading in either a criminal or civil proceeding. He had worked for a unit of SAC Capital called CR Intrinsic Investors in Stamford, Connecticut, until 2010.

The criminal complaint against Martoma does not name Cohen but refers to him as the "owner" of the hedge fund and makes clear that Cohen and Martoma talked often about the fund's trading in shares of Elan and Wyeth. The court papers do not say Cohen knew how Martoma obtained his information.

Martoma's lawyer, Charles Stillman, said his client was an "exceptional portfolio manager" and he is confident Martoma will be exonerated.

A spokesman for SAC Capital said "Mr. Cohen and SAC are confident that they have acted appropriately and will continue to cooperate with the government's inquiry".

The charges against Martoma stem from the U.S. government's long-running investigation of improper trading in the $2 trillion hedge fund industry, which the Federal Bureau of Investigation has called Operation Perfect Hedge.

The investigation has led to more than 50 convictions so far, most notably former Galleon founder Raj Rajaratnam and former Goldman Sachs Group director Rajat Gupta.   Continued...

Preet Bharara, U.S. attorney for the Southern District of New York, points to a chart as he speaks during a news conference to announce the charges of insider trading against a former hedge fund portfolio manager Mathew Martoma in New York November 20, 2012. REUTERS/Keith Bedford