New Guilty Verdict Could Be Bad News For SAC Capital’s Steven Cohen

Former SAC Capital Advisors LP Portfolio Manager Mathew Martoma Found Guilty On Insider Trading Charges
Mathew Martoma, center, a former portfolio manager with SAC Capital Advisors LP, exits federal court in New York, U.S. following the jury's verdict, on Thursday, Feb. 6, 2014. Louis Lanzano / Bloomberg via Getty Images

Former hedge fund manager Mathew Martoma faces 45 years in prison on charges of insider trading.

There’s nothing like the prospect of prison time to make one reconsider one’s choices.

In the wake of the guilty verdict Thursday in the insider trading case against former hedge fund manager Mathew Martoma, prosecutors will certainly make another attempt to “flip” him–he is the most likely source of evidence, if any exists, of wrongdoing by Steven Cohen, the founder of the beleaguered SAC Capital Advisors. But for Martoma, who has never claimed to have any evidence against Cohen, it may be too late to make a deal to stay out of jail.

Martoma and Cohen had a 20-minute phone conversation on Sunday July 20, 2008 the morning after Martoma had a lengthy meeting with a doctor consulting a drug company on clinical testing of an Alzheimer’s drug. The day after Martoma’s call with Cohen, SAC began getting out of $700 million of investments affected by the outcome of the trials.

Trial results on the drug were announced on July 29, 2008 and SAC earned $276 million in profits and avoided losses thanks to their trades in the preceding days. SAC pleaded guilty in November to insider trading charges. Cohen has denied any wrongdoing, and prosecutors have not brought any criminal charges against him.

Martoma has reportedly declined to cooperate with the government in the case, to the mystification of members of the white collar bar and prosecutors.

The problem for Martoma is that the value of his testimony in any future case has diminished over the course of his trial. The convictions on two counts of securities fraud and one of conspiracy cast doubt on Martoma’s credibility. And on the eve of his trial it emerged that he had been expelled form Harvard Law School for falsifying his transcript when he applied for a clerkship with a federal judge.

Still, at 39-years-old, Martoma may be eager to do what he can to pare down the potential 45-year maximum sentence that comes with his conviction on the three counts.

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