Indian-origin hedge fund manager due in New York court
An Indian-origin hedge fund portfolio manager will appear in Manhattan federal court after he was arrested last week and charged with participating in a $276 million insider trading scheme involving Alzheimer's disease drug trial.
Charges against Mathew Martoma, 38 have been brought by Manhattan's top federal prosecutor India-born Preet Bharara, who has led the government's massive crackdown on insider trading and won convictions against prominent Wall Street executives like ex-Goldman director Rajat Gupta and billioniare hedge fund founder Raj Rajaratnam.
Martoma was arrested at his home in Boca Raton, Florida last week and would appear in Manhattan federal court today.
He has been charged with using material, non-public information that he received from a doctor on the clinical
trial of an Alzheimer's disease drug to make profits and avoid losses for his hedge fund in an amount totaling approximately $276 million.
A report in the New York Times cited legal records and said Martoma is the son of Indian immigrants and was born Ajai Mathew Mariamdani Thomas. He changed his name in 2003.
He was raised in Florida and spent a year and a half at Harvard Law School, from where he dropped out to earn a business degree at Stanford University.
Martoma is charged with one count of conspiracy to commit securities fraud and two counts of securities fraud. He faces a maximum penalty of 45 years in prison and a $5 million fine.
As portfolio manager at his hedge fund, Martoma was responsible for investment decisions in public companies in the health care sector that were involved in the development of experimental drugs to combat Alzheimer's disease.
According to allegations in the three-count criminal complaint, in order to obtain inside information about the
Alzheimer's disease drug trial, Martoma arranged for approximately 42 paid consultations between 2006 and July 2008 with a leading doctor who chaired the Safety Monitoring Committee for the trial.
Martoma exploited his personal and financial relations with the doctor and obtained inside information about the drug trial that the doctor learned at the SMC meetings and through other communications with drug companies Elan and Wyeth.
The doctor is now a cooperating witness for the government and has entered into a non-prosecution agreement.
The inside information Martoma initially received from the doctor consisted of safety data about which the doctor was aware through his chairmanship of the SMC.
As a result, Martoma increased the holdings of Elan and Wyeth, and further recommended that the owner of the hedge fund increase the hedge fund's position in Elan and Wyeth.
The hedge fund held approximately $700 million worth of Elan and Wyeth equity securities by June 2008.
In announcing the charges last week, Bharara had said that the charges against Martoma describe "cheating coming and going-specifically, insider trading first on the long side, and then on the short side, on a scale that has no historical precedent".
Bharara said Martoma and his hedge fund benefited from one of the most lucrative inside tip of all time by "cultivating and corrupting" a doctor with access to secret drug data.
Martoma first recommended that his hedge fund increase its stock in drug firms Elan and Wyeth stock and then caused the fund to shed those shares after getting a secret look at the unexpectedly bad results of the clinical drug trial.
"As a result of the blatant corruption of both the drug research and securities markets alleged, the hedge fund made profits and avoided losses of a staggering 276 million dollars, and Martoma himself walked away with a 9 million dollar bonus for his efforts," Bharara had said.
