Whenever I read about this SAC trader Matthew Martoma, my blood boils and I get really immature and want to yell things like:
Sorry. I do not really know where to begin with Mr. Martoma, so perhaps I will start at the beginning. Mr. Martoma was smart enough to get into Harvard Law School. (Although, given what follows, I assume he cheated his way through high school and college. He went to Duke, which is really upsetting for a Dukie like me.) After law school, the most prestigious job you can get is actually a very low-paying one: a judicial law clerk. Mr. Martoma allegedly used the Harvard Law computer system to change his grades and print a false transcript. He then used that transcript to apply for clerkships (and apparently to impress his parents). Martoma was an accomplished liar, because he was offered several clerkships. Someone found out about his fake transcript, however, so he had to withdraw his applications. He was eventually kicked out of Harvard Law as a result of the scandal. This whole story resonates with me because I remember the process of applying for judicial clerkships like it was yesterday. Plus, as a lawyer, the thought of lying to a judge is crazy.
Somehow Martoma then got into Stanford Business School, got his MBA, and went into finance. He ended up at SAC Capital, one of the most successful hedge funds in the world. The U.S. Attorney has been investigated SAC Capital for years, trying to prove a case of insider trading. In other words, the federal authorities believe there is a reason that SAC Capital was so successful, and it wasn’t legal.
The company was indicted last summer, pled guilty to insider trading violations and paid a $1.2 billion penalty. But the prosecutors really want information to indict the head of SAC Capital, Steven Cohen. Mr. Martoma, convicted this week of insider trading, was charged with “seducing” doctors at two pharmaceutical companies into providing insider information about drug trials for two new Alzheimers drugs. SAC went on to buy large quantities of stock in the two companies. Then, after learning more from his insiders, Mr. Martoma allegedly made a phone call to Cohen on a Sunday at home. The very next day, at Mr. Cohen’s instructions, the hedge fund began selling those stocks. What prosecutors really need to know is what Martoma told Cohen in that phone call. Without that evidence, despite ten years of investigation, the prosecutors can’t prove that Cohen knew what Martoma was doing.
Usually in a case like this, Martoma would hold a “get out of jail free” card — the evidence that the federal prosecutors need to get the big fish. But Martoma’s history of lying and cheating means that he would lack credibility on the witness stand. If the defense attorney can easily establish that he is a liar (imagine the cross examination!!), he is worthless to the prosecutors. Commentators are suggesting that is why Martoma couldn’t make a deal as a cooperating witness, and instead went to trial and lost. He now faces seven to ten years in prison.
The lesson? All lies eventually catch up to you. What seemed to be a youthful transgression to some, turns out to send you to jail. The very best irony? Martoma was a co-founder of the Harvard Law School’s Society of Law and Ethics.
6 Comments
Chen Shi posted on February 8, 2014 at 10:55 pm
It is ethics that lead people to do things either in the right way or the easy way. I can’t believe a guy that smart, who got the most prestigious education in USA, would turn out to be a liar. Sometime people who are more “strategic” and “smart” and at the same time understand the rule of the game, are suprisingly more successful. And this is a societal tragedy. I guess a good lesson from professor’s article is that everything comes down to your choice in the end.
TClaes Johnson posted on February 9, 2014 at 6:40 pm
Stories like these not only further hurt the reputation of wall street, but do a major disservice to anyone interested in finance/attaining an MBA. As a student who absolutely wants to earn an MBA during my career, knowing that an individual who was kicked out of Law school was granted admission to one of the top MBA programs is disheartening to say the least. While schools like BU can stress the importance of ethics, in incredibly competitive fields such as finance, it is evident that a large number of employees place short term gain ahead of all else, hoping to achieve it through any means necessary. Cant believe this guy was even able to make it to SAC in the first place.
Michaela Ragaisis posted on February 12, 2014 at 10:19 am
It’s unfortunate that Matthew Martoma got away with so much for so long. His greed and laziness to get quick cash and status definitely pushed him to this point. I agree with the comments above. This reinforces the stereotype of the scummy side of Wall Street. I hope he does get punished for all his lies and for cheating people of money.
It also makes Harvard and Stanford look bad for having a student like that at their prestigious schools. It’s a good thing Harvard kicked him out, so I don’t get why Stanford would accept him after the scandal. It is really ironic and funny that he was a co-founder of the Harvard Law School’s Society of Law and Ethics.
Michael Rosenstein posted on February 26, 2014 at 6:27 am
Thanks for this interesting and great article.
Stefania Semenova posted on February 28, 2014 at 6:22 pm
This is a very interesting story. It is unfortunate to see the recent increase in insider trading cases on Wall street nowadays. It makes me question the functionality of our financial system and ethics code on Wall street. It is an unacceptable crime since it affects the trust between investors and the companies and damages the financial market The good thing, however, is that the crime is coming to the surface. Matroma’s case is 78th to be won by Manhattan attorneys. Years of investigation paid off. Well done! I feel bad for his wife and his three children though.
Another question that I had after reading multiple articles about Matroma is how come the doctors were allowed to perform both consultations for the investing company trading pharmaceutical companies stocks and drug tests for those pharmaceutical companies.I do not know if there is a law that governs that, but in my opinion it should not be allowed since it leads to temptations and unethical behavior.
Overall great topic for the current event paper!
Thank you professor Spooner!
software testing posted on March 5, 2015 at 3:12 am
However, somehow, given his past and the persona of the guy, I can not see this happening.