Supreme Court Rejects Martoma, Won't Curb Insider-Trading Cases

(Bloomberg) -- The U.S. Supreme Court left intact the insider-trading conviction of former SAC Capital Advisors LP portfolio manager Mathew Martoma, rejecting an appeal that could have undercut efforts to clean up Wall Street.

The justices, without comment Monday, let stand a federal appeals court decision that upheld Martoma’s 2014 conviction for using tips to make $275 million for SAC on trades in two pharmaceutical stocks. Martoma is serving a nine-year sentence in a Miami prison following the largest insider-trading case ever brought against an individual.

White-collar crime experts said the ruling by the New York-based 2nd U.S. Circuit Court of Appeals widened the category of people who can be prosecuted, covering traders who get an inside tip as a gift from an acquaintance or business associate.

Martoma told the Supreme Court the ruling eviscerated the decades-old requirement for proof that the person providing the tip received some sort of personal benefit in return.

“It now suffices for the government to prove that the insider intended to benefit the tippee/outsider,” Martoma argued in his appeal. “That test focuses on the wrong question and radically dilutes the government’s burden.”

Martoma had spurned government requests that he cooperate in its investigation of SAC and its billionaire founder, Steven A. Cohen.

Record Fine

SAC pleaded guilty in 2013 and paid a record $1.8 billion fine to resolve U.S. claims over insider trading. It changed its name to Point72 Asset Management LP and agreed to manage only Cohen’s money.

The Supreme Court unanimously ruled in 2016 that people can be sent to prison even when the insider who provided the tip wasn’t trying to make money. That case involved an investment banker who gave information to his brother.

In Martoma’s case, the 2nd Circuit said it didn’t matter how close the relationship was between the two people, as long as the tipper had an “intent to benefit” the recipient.

The Trump administration urged the Supreme Court to reject the appeal without a hearing, saying Martoma’s conviction didn’t depend on the “intent to benefit” standard.

The government said Martoma got confidential information about a clinical trial on an experimental Alzheimer’s drug from a doctor to whom the trader had previously paid more than $70,000 in consulting fees.

Martoma’s “corrupt quid pro quo arrangement fell within the heartland” of prohibitions in the federal securities laws, the administration argued.

The case is Martoma v. United States, 18-972.

--With assistance from Chris Dolmetsch.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net

To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Laurie Asséo, Ros Krasny

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