Two years ago, former Harvard Law student, Stanford MBA and SAC Capital analyst Mathew Martoma asked the U.S. Court of Appeals for the Second Circuit to, you know, let him out of jail. Just weeks after he checked into the federal minimum-security resort in Miami, and just six months before his own appearance before it, the same court had just ruled that insider-trading—the crime of which he was convicted—may not actually exist. The Second Circuit patiently heard Martoma out.
Alas, the wheels of appellate justice turn slowly, and by the time the Second Circuit got around to thinking about Martoma’s case, the Supreme Court decided it would hear another case about, what, exactly, constituted a benefit to a tipper vis-à-vis insider trading. So the Second Circuit told Martoma to cool his orange-jumpsuited heels for a while until the Supremes decided what is and isn’t insider trading, which they did, back in December, finding that, while mere friendship might not be enough of a benefit, a blood relationship pretty much seals the deal. With that cleared up, the Second Circuit was ready to hear Martoma’s argument again.
Clement argued that prosecutors failed to introduce sufficient evidence showing that the person who gave Martoma the tips did so because of money he was paid. In addition, the judge’s instructions to jurors were faulty, Clement argued, because they allowed a conviction based on the premise that the tipper was motivated by a desire for friendship, rather than by an existing personal relationship.
So, SAC was paying Sidney Gilman $1,000 an hour to talk non-non-public shop with Martoma, but definitely not for the non-public information Gilman was feeding him about the clinical trials he was working on. And Gilman didn’t want to go to dinner parties or ballgames with Martoma, so no friendship. Therefore, Gilman gave Martoma the inside dirt for no legally actionable reason at all.
The U.S. Attorney’s Office in Manhattan doesn’t need the likes of Preet Bharara around to pour scorn on that line of reasoning.
Assistant U.S. Attorney Robert Allen argued Tuesday that the financial relationship was enough to support the conviction. Gilman testified that Martoma tried to befriend him, often discussing personal and family matters during their calls.
"Martoma tried to foster a close relationship," Allen told the judges. "And the reason he did that was obvious. He wanted to milk him for inside information."