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Friday, Nov 30, 2012 9:45 PM UTC

Insider trading suspect was model ethics student

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Insider trading suspect was model ethics studentMathew Martoma is surrounded by media as he leaves the federal courthouse in New York, Monday, Nov. 26, 2012. Martoma, accused of enabling a quarter of a billion dollars in profits through inside information, appeared in a New York court Monday for the first time and was released on $5 million bail after his 12-minute appearance before a federal magistrate judge. (AP Photo/Seth Wenig)(Credit: AP)

BOSTON (AP) — Mathew Martoma knew from an early age he wanted to blend his interests in health care, business and law into a career, and he excelled as a bioethics student. Yet the 38-year-old Florida man now finds himself embroiled in what could prove one of the biggest ethical lapses in Wall Street’s history.

Federal prosecutors allege Martoma, a former hedge fund portfolio manager, persuaded a medical professor to reveal secret data from an Alzheimer’s disease drug trial. They say that allowed Martoma engineer a record-setting insider-trading scheme that reaped more than a quarter-billion dollars in illegal profits.

The FBI arrested Martoma on Nov. 20 at his $2 million Palm Beach County home on two counts of securities fraud and a related conspiracy charge. His lawyer says there was no misuse of secret information. Phone calls by The Associated Press to listings for Martoma were not returned.

The arrest has surprised and puzzled some academics who knew Martoma before he aligned himself with a billionaire, SAC Capital Advisors hedge fund owner Steven A. Cohen. They say the criminal behavior prosecutors allege doesn’t match their memories of an intelligent, ambitious and idealistic young scholar.

“It’s sort of a tragic story it seems to me, if there’s any truth to it,” said Ronald Green, Martoma’s supervisor at the National Institutes of Health in the late 1990s, and a Dartmouth College religion professor who directs the school’s Ethics Institute.

Green backed Martoma’s hiring at NIH shortly after his Duke University graduation, and he became part of a case study about ethics and Alzheimer’s disease.

“I think one of the reasons he was brought in for this function just after college is he had very good training in bioethics and he’s a congenial person,” Green said. “He’s a guy who strikes up relationships and maintains them very well.”

The 1998 journal article that resulted listed Martoma’s name first when it published in a small health care ethics journal in Cambridge, Mass.

But Martoma was out of his league when it came to the other collaborators, some of whom never met him. That included Allen D. Roses, the Duke neurobiologist known for discovering the link between a gene called apolipoprotein E and Alzheimer’s disease.

Green figured the paper would help Martoma — then known as Ajai Mathew Thomas — jump-start his career. Martoma enrolled in Harvard Law School in 1997 but dropped out in 1998, soon setting his sights on business school.

Bruce Payne, a former Duke professor, stressed Martoma’s strong ethical code when he wrote a recommendation letter for his ex-pupil’s application to Stanford University Graduate School of Business. Martoma was in Payne’s ethics and policymaking class in 1994, before later becoming his chief teaching assistant for the class.

Payne, now executive director of the Shelley & Donald Rubin Foundation, wrote that Martoma was “extraordinarily intelligent,” ”remarkably analytic” and “wonderfully fair-minded.”

“No one has contributed more to our class discussions of Sissela Bok’s ‘Lying,’ nor was anyone in our class as acute on the issues of moral capacity raised by Camus’ ‘The Plague,’” Payne told Stanford.

Soon, Martoma was heading to Stanford. His educational about-face accompanied a choice in 2001 to legally change his name, a decision Green believes Martoma made to return to his Indian roots.

Martoma gained a reputation as a stand-up guy in business school, said Saar Gur, a venture capitalist who was a classmate of Martoma’s at Stanford.

“Personally, I would not have expected this sort of thing from the Mat that I knew 10 years ago,” Gur said. “To me he seemed really nice, very smart and ethical. … Did the situation and SAC push him over the edge? I have no idea. Obviously I hope he is not guilty.”

In 2003, Martoma married a pediatrician who shared his Indian background. He took a job as a junior analyst for Sirios Capital Management LP in Boston, where the couple lived in luxury high-rises in posh parts of downtown.

Martoma began a four-year stint in 2006 with Connecticut-based SAC affiliate CR Intrinsic Investors LLC, first as an analyst and then as a hedge fund portfolio manager specializing in the health care sector.

A few summers ago, Green, the Dartmouth professor, caught up with his former NIH assistant in a house the Martomas rented on Cape Cod. While they didn’t talk much about business, Green said, Martoma told him he was working in the venture capital field.

“I knew that Mathew was in a high-stakes world; that was clear to me,” Green said.

Prosecutors say Martoma began meeting with University of Michigan medical professor Sidney Gilman in 2006 through an expert consulting service in New York City. They say that between then and 2008, the physician leaked Martoma confidential information about a joint drug trial by pharmaceutical companies Elan Corp. and Wyeth.

Gilman’s lawyer has said his client is cooperating with authorities and has reached a non-prosecution agreement with federal officials.

With the secret data, prosecutors say, Martoma caused other investment advisers to at first buy shares in the drug companies, then ditch them and place financial bets against the companies when he found out before the public that the drug trial’s final outcome was negative. Authorities say Martoma made $9 million in bonus pay for the year when the trades were made.

Martoma’s lawyer Charles Stillman has said his client, now free on $5 million bail put up by his in-laws, succeeded because of his dogged pursuit of information in the public domain.

“I would say, having studied ethics in the biomed area, that he is keenly aware of what’s right and what’s wrong, and we do not believe he stepped across the line,” Stillman said.

Martoma will stay at his Boca Raton home with his wife and children, apart from required court appearances for his case in U.S. District Court in Manhattan, the lawyer said. Martoma has been working on independent projects since CR Intrinsic let him go in 2010, but he wouldn’t be more specific about the work.

Martoma’s arrest marked the fourth time authorities have arrested someone from SAC on insider trading charges in the past four years. A company spokesman has said the company and its owner “acted appropriately” and will cooperate with the government’s probe.

___

Associated Press writer Tamara Lush in Tampa, Fla., and AP News Researcher Rhonda Shafner in New York contributed to this report.

By Bridget Murphy

More By Bridget Murphy.

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