SEC Lays Down the Law on Former SAC Capital Trade

SEC prosecutors have found former SAC Capital employee Mathew Martoma guilty of insider trading on Thursday February 6th. The prosecution was able to gather testimony from two doctors who have admitted to giving information about the drug to the former SAC employee. Martoma is the latest of eight SAC employee to be found guilty of charges brought about by the SEC. Martoma had allegedly received a tip about a new Alzheimer’s drug that had responded poorly in medical trials.

Prosecutors proved to the jury that Martoma acted illegally on this tip and encouraged SAC Capital to lower its stake in Elan Corp. and Wyeth, the makers of the drug. The results of this medical trial were not published until a month after Martoma received this tip, allowing SAC Capital to avoid nearly $275 million in potential losses on its holdings. The SEC stated that this was the largest insider trading case that they have ever found someone guilty of in a criminal trial. This case is no doubt a large step for the SEC in their campaign to put together a criminal trial against multibillionaire and SAC co-founder Steven A. Cohen.

Prosecutors allege that SAC Capital has, for a long time, encouraged an investing strategy of “gaining an edge” and gathering inside information on its holdings. Cohen was said to have had a twenty-minute conversation with Martoma after he had learned of the drug’s failure. SAC had also paid Mr. Martoma’s legal fees for the trial. SAC Capital is currently barred from managing clients’ money and only manages the money of co-founder Steven A. Cohen. Mr. Cohen is currently facing no criminal charges but is being charged in a separate civil trial for his inability to properly supervise two of his senior employees that have been convicted of insider trading.
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Jack McIlvaine