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Rediff.com  » Business » Indian-origin hedge fund manager freed on $5 million bond

Indian-origin hedge fund manager freed on $5 million bond

November 27, 2012 09:01 IST

An Indian-origin hedge fund portfolio manager, charged with participating in one of the "most lucrative" insider trading schemes ever, has been released on a $5 million bail after he appeared in Manhattan federal court.

Mathew Martoma, 38, appeared in a brief court hearing yesterday (Monday) before US Magistrate Judge James Cott and was informed of his rights as a criminal defendant.

Martoma, who was arrested last week at his home in Boca Raton, Florida, did not enter any plea and the judge set a next court hearing of December 26.

Martoma has been charged with using material, non-public information that he received from a doctor on the clinical trial of an Alzheimer's disease drug to make profits and avoid losses for his hedge fund in an amount totalling approximately $276 million.

The US Securities and Exchange Commission have also filed a civil insider trading case against him on similar charges.

A Stanford University graduate, Martoma is the son of Indian immigrants and was born Ajai Mathew Mariamdani Thomas. He later changed his name in 2003.

Under the new bail requirements, Martoma would have to post $2 million in cash or property by next week.

While free on bail, his movements will be restricted within the US.

Manhattan's top federal prosecutor Preet Bharara had last week brought the charges against Martoma, who had worked with CR Intrinsic Investors, an affiliate of SAC Capital Advisors. SAC is owned by hedge fund titan Steven Cohen, who is among one of the richest men in the world.

Martoma is the fifth person associated with SAC, which is considered one of the most influential hedge funds, to be charged with insider trading.

Martoma was accompanied by his wife Rosemary at the hearing who agreed to serve as one of three co-signers for his bail.

After the hearing, Martoma's lawyer Charles Stillman expressed confidence that his client would be acquitted of the charges.

Martoma is charged with one count of conspiracy to commit securities fraud and two counts of securities fraud. He faces a maximum penalty of 45 years in prison and a $5 million fine.

As portfolio manager at his hedge fund, Martoma was responsible for investment decisions in public companies in the health care sector that were involved in the development of experimental drugs to combat Alzheimer's disease.

According to allegations in the three-count criminal complaint, in order to obtain inside information about the Alzheimer's disease drug trial, Martoma arranged for approximately 42 paid consultations between 2006 and July 2008 with a leading doctor who chaired the Safety Monitoring Committee for the trial.

Martoma exploited his personal and financial relations with the doctor and obtained inside information about the drug trial that the doctor learned at the SMC meetings and through other communications with drug companies Elan and Wyeth. The doctor is now a cooperating witness for the government and has entered into a non-prosecution agreement.

The inside information Martoma initially received from the doctor consisted of safety data about which the doctor was aware through his chairmanship of the SMC.

As a result, Martoma increased the holdings of Elan and Wyeth and further recommended that the owner of the hedge fund increase the hedge fund's position in Elan and Wyeth. The hedge fund held approximately $700 million worth of Elan and Wyeth equity securities by June 2008.

Martoma first recommended that his hedge fund increase its stock in drug firms Elan and Wyeth stock and then caused the fund to shed those shares after getting a secret look at the unexpectedly bad results of the clinical drug trial.

While Cohen has not been accused of any wrongdoing, prosecutors have said in court papers that the "owner" of the hedge fund had signed off on Martoma's recommendation to sell the shares of Elan and Wyeth.

Yoshita Singh in New York
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