The grand jury in New York returned an indictment against Mathew Martoma, a former portfolio manager at CR Intrinsic Investors, one of SAC Capital Management's funds, in what prosecutors have called the "most lucrative" insider trading scheme ever.
Martoma, 38, of Boca Raton, Florida, was indicted on three counts of conspiracy to commit securities fraud and securities fraud related to trades made in Elan Corp Plc and Wyeth - now part of Pfizer Inc - based on tips prosecutors say he received from a doctor.
The trades allegedly helped CR Intrinsic avoid losses and reap profits totalling $276 million in the summer of 2008. The indictment followed an earlier criminal complaint federal prosecutors filed November 20. Martoma is the seventh former employee of Cohen's to be charged or implicated in insider trading schemes, and the criminal complaint against him is the first to refer to Cohen.
Cohen appears as "Hedge Fund Owner" in the criminal complaint and "hedge fund manager A" in the corresponding civil complaint against Martoma, filed by the US Securities and Exchange Commission, according to a source familiar with the case. "The simple fact is that Mathew Martoma did not trade on inside information, is innocent of all these charges, and we look forward to his ultimate vindication."
The same day as the indictment, investors in Elan's American depository receipts sued SAC Capital, Cohen and Martoma, among others, for federal securities law violations related to the alleged the insider trading. The lawsuit, filed in the US District Court in New York, appears to be the first private action against SAC stemming from the insider trading criminal case. The lawsuit seeks class action status and unspecified damages.
After the Federal Bureau of Investigation arrested Martoma in late November, federal prosecutors filed a criminal complaint against him but did not formally charge him, a move widely seen as leaving the door open for Martoma to "flip." Had he flipped, he would have had to agree to a plea deal in exchange for becoming a co-operating witness for the government.