Former SAC Capital portfolio manager Mathew Martoma’s insider trading trial was rocked by revelations last week that he’d been expelled from Harvard Law School in 1999 for falsifying his grades. The news generated its share of hyperbolic headlines—but will the jury ever hear about it?
It’s unclear whether the judge will allow details of Martoma’s Harvard exploits to be introduced at his trial. “If the defendant testifies, that’s one set of rules,” defense lawyer Doug Burns said on Bloomberg TV on Friday. “If the defendant does not testify, it’s another set of rules.” Which basically means that if Martoma takes the stand—which is about as likely as SAC founder Steven Cohen showing up in the courtroom—then prosecutors would almost certainly be able to introduce his 15-year-old deceptions as evidence of his propensity to break the rules.
The jury could still see it in the newspaper, of course, although jurors aren’t supposed to read about the case. Assuming they don’t, the Harvard story will still serve strongly to the prosecution’s benefit: If Martoma’s lawyer tries to defend him too vigorously, by arguing that he’s a fundamentally honest person, for example, or that the government is missing critical evidence, then the government could easily argue that the Harvard story is necessary to rebut the claims. Whether or not it becomes an explicit part of the case, it may have a chilling effect on Martoma’s ability to defend himself.
Details surrounding Martoma’s departure from Harvard were unsealed by the court on Jan. 9, after a battle by his lawyers to keep them secret. It’s easy to understand why they went to the trouble: The sordid tale is potentially devastating to Martoma’s case. The events in question happened in 1999, when the now-39-year-old Martoma was in his mid-20s. “This event of 15 years ago is entirely unrelated to, and has no bearing on, this case,” says Martoma’s spokesman Lou Colasuonno.
Martoma stands accused of insider trading in two drug stocks, Elan and Wyeth, while he was working at SAC, in what the government argues is the largest insider trading case ever, involving $275 million in alleged profits and avoided losses. Martoma, prosecutors say, “corrupted” a doctor named Sidney Gilman who was involved in the trial of a promising Alzheimer’s drug, as the lead prosecutor Arlo Devlin-Brown put it during his opening argument, and over time extracted secret, moneymaking information from him. “This case will contain some science, but it is not a science test,” Devlin-Brown said. “It also involves a sophisticated hedge fund.” But, he said, the case isn’t about science or hedge funds, “it’s about cheating.”
In late 1998, Martoma, a graduate of Duke, altered the transcript of his first-year law school grades: He gave himself A’s in Civil Procedure, Contracts, and Criminal Law, rather than the B, B+, and B he’d earned, according to a Harvard Administrative Board report. He applied for clerkships with 23 judges using the altered transcripts. Weeks later, someone in the school’s registrar’s office discovered that the transcript had been changed. Martoma then withdrew the clerkship applications and told Harvard that the doctored transcripts had been sent out by mistake.
In a classic example of how the coverup is usually worse than the crime, Martoma appealed his dismissal from Harvard by arguing that he’d withdrawn the applications before he was caught and that the improper transcripts had been submitted accidentally. His efforts apparently involved creating a fake computer data forensics company, complete with a professional-looking marketing flyer, to corroborate the time stamps of his e-mails. The Harvard board was not convinced. Subsequent to the incident, Martoma legally changed his name from Ajai Mathew Thomas to Mathew Martoma and went on to Stanford business school and a lucrative career as a hedge fund investor. How he gained admission to Stanford in light of what happened at Harvard remains a mystery. In 2008, the year of his Elan and Wyeth trades, SAC awarded Martoma a $9.3 million bonus.
On Friday, Martoma’s defense lawyer Richard Strassberg of Goodwin Proctor compared his case to those in the Broadway play The Exonerated, about wrongful death-row convictions.
Why Martoma would jeopardize his future to get a summer job is unclear, but the Harvard administrative report contained this line: “The Board notes that Mr. Thomas was apparently under extreme parental pressure to excel academically.”