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A N 8 8 D 8 B 1 AR SINCE WWW. NYLJ.COM VOLUME 251—NO. 23 TUESDAY, FEBRUARY 4, 2014

WHITE-COLLAR CRIME Expert Analysis Martoma: Prior Bad Acts And Hobson’s Choice for Defendants

criminal defendant’s decision and . Six other employees to take the stand or remain have pleaded guilty.1 silent in the face of the gov- Former SAC portfolio manager Mathew ernment’s accusations is one of Martoma is the second employee, after the most pivotal choices to be Steinberg, to contest the government’s Amade during a criminal trial. Frequently, insider trading charges. Martoma is defendants opt to stay silent, fearing charged with illegally trading on confiden- By And the prosecution’s inevitable attack on Robert J. Richard F. tial information obtained from a doctor their credibility and character if they Anello Albert involved in a 2008 pharmaceutical trial take the stand to defend themselves. for an Alzheimer’s-related drug jointly Many believe, however, that declining insider trading prosecution currently developed by Elan Corp. Plc and Wyeth. to take the stand in white-collar cases is on trial in the Southern District of New The indictment alleges that Martoma risky, particularly in insider trading pros- York reveals how the government can received inside information about the ecutions—just ask Michael Steinberg, seek to inject such “prior bad acts” drug companies’ Alzheimer’s study from , or , a few evidence into a case to raise questions Dr. Sidney Gilman, an Alzheimer’s dis- of those convicted in recent high-profile about the defendant’s credibility regard- ease expert and professor who worked insider trading cases after deciding not less of whether or not the defendant as a paid consultant to Elan. Among the to testify at trial. takes the stand. At the very least, the information Martoma is alleged to have The popular perception is that the jury government’s aggressive stance is likely received is an advance copy of a Pow- wants to hear the defendant’s story from to dissuade the defendant from testifying erPoint presentation created by Elan for the horse’s mouth and a defendant’s deci- in his own defense. Gilman to use in publicly presenting the sion to stay silent can give the impression Mathew Martoma Trial final results of the confidential drug trial at that he or she has something to hide. an Alzheimer’s disease conference in July In some instances, however, the “some- Experience shows that winning an acquit- 2008. The presentation revealed that the thing to hide” may be unrelated to the tal in a criminal insider trading case is not drug had not been as successful as hoped. case at hand. It may be a 14-year-old law easy. In recent trials in the Southern District According to the government, within one school expulsion for altering an academic of New York, the government is batting a half-hour of Gilman’s receipt of the presen- transcript, for example, or evidence that thousand. The insider trading investigation tation, he contacted Martoma to discuss the date on an email was changed in an of SAC Capital hedge fund and former SAC the negative outcome of the drug 5trial attempt to cover-up the aforementioned employees, referred to as the “most lucra- and also “sent Martoma the confidential transcript alteration. tive insider trading case in presentation slides he had received from How such past conduct relates to history,” demonstrates that defendants Elan” via email.2 Allegedly, Martoma sub- present day allegations of criminal charged with insider trading believe they sequently caused SAC to sell virtually all wrongdoing is hard to fathom unless the have little chance of success. In November of its approximately $700 million worth defendant takes the stand to declare his 2013, SAC Capital agreed to pay $1.2 billion of Elan and Wyeth stock. honesty and veracity. Nevertheless, an and plead guilty to fraud charges related to Following the public announcement, the probe into insider trading at the corpo- Elan stock fell approximately 42 percent ration. In December 2013, a top portfolio ROBERT J. ANELLO and RICHARD F. ALBERT are partners at and Wyeth stock fell approximately 12 3 Morvillo Abramowitz Grand Iason & Anello. GRETCHAN R. manager at the company, Michael Steinberg, percent. The government has charged OHLIG, an attorney, assisted in the preparation of this article. was found guilty of five counts of conspiracy that the trades prompted by Martoma’s TUESDAY, FEBRUARY 4, 2014

inside information allowed SAC Capital to Martoma argues that the government and documents against Martoma’s interest make financial gains and avoid losses of impermissibly seeks to “fill the gaping hole in confidentiality and privacy, Gardephe $276 million and that Martoma received in its case by turning the [Harvard Law denied Martoma’s request.9 a bonus of approximately $9.3 million.4 School] material into a Sword of Damocles First, the court found that the core Preet Bharara, the U.S. Attorney for the that precludes Mr. Martoma from offering elements of the Harvard Law School evi- Southern District of New York, has been straightforward defenses to the charges dence—that Martoma falsified grades on quoted as saying that the scale of Mar- against him.”7 Martoma insists that the his transcript, that copies of the grades toma’s insider trading scheme “has no evidence is inadmissible. First, as a fac- were submitted to federal judges, that historical precedent.”5 tual matter, Martoma points out that the Martoma interviewed with three federal At issue in the case is whether Gilman in Harvard Law School proceedings were judges knowing that the interviews were fact emailed the PowerPoint presentation hotly contested and that the “findings and premised on his falsified record, that to Martoma. The government concedes conclusions” were not as clear cut as the Martoma submitted a computer foren- that although Gilman—who is cooperat- government represents. He argues that sic report concerning a disputed email ing with the government and received a submission of the evidence at trial likely without disclosing to the disciplinary non-prosecution agreement for his role would lead to lengthy and complex “mini- committee at Harvard that he was an in the scheme—will testify that he sent trials” on issues tangential to the case. owner of the company that prepared the PowerPoint presentation to Martoma the report, and that he was expelled as via email, no computer forensic evidence a result of this misconduct—were not supports this claim. To the extent Mar- The Martoma case highlights the in dispute, which weighed against Mar- toma seeks to raise the lack of forensic toma’s claimed privacy interests. “The evidence in his defense, the government age-old quandary faced by de- Court concludes that the embarrassment insists it should be able to use evidence fendants and their attorneys re- Martoma will suffer if the [evidence] is of prior bad acts by Martoma in rebuttal garding the decision to testify in disclosed does not trump the presump- to show that the defendant possesses the tive right to public access that attaches ability to destroy or fabricate electronic one’s own defense at trial. to substantive pre-trial motions.” forensic evidence and, therefore, had the With respect to Martoma’s assertion ability to destroy evidence of his receipt Second, Martoma argues that the evi- that disclosure of the evidence would prej- of the PowerPoint presentation.6 dence is irrelevant and unfairly prejudi- udice his Sixth Amendment right to a fair According to documents unsealed ear- cial. “The [evidence] is not probative of trial, Gardephe opined that the 14-year-old lier this month by Southern District of any special capacity, ability, knowledge, Harvard Law School evidence was actually New York Judge Paul G. Gardephe, the or modus operandi…, [but] consists of less inflammatory than the charges in the prior bad acts evidence relates to Marto- disputed allegations against Martoma.”8 indictment, which already had received ma’s expulsion from Harvard Law School Further, Martoma asserts that whether he extensive publicity. Regardless, the court in 1999 for fabricating his academic tran- engaged in any of the alleged Harvard Law concluded that reasonable alternatives script. Specifically, the government seeks School conduct makes it no more likely were available to protect the defendant’s permission to admit evidence claimed to that he engaged in the insider trading con- Sixth Amendment rights, including voir show that Martoma, who changed his duct at issue. Instead, the evidence would dire of jurors to determine the effect of name from Ajai Mathew Thomas after the only reflect negatively on Martoma’s char- any negative publicity. expulsion: 1) used computer software to acter – exactly the type of evidence Rule Defendants’ Quandary generate a forged law school transcript, 404(b) is intended to preclude. which subsequently was submitted to Weighing Issues “It is better to remain silent and be federal judges from whom the defen- thought a fool than to open one’s dant sought a clerkship; 2) fabricated Although Judge Gardephe did not rule mouth and remove all doubt.” phony email evidence to bolster a false whether the evidence is admissible, he —Mark Twain defense before the law school Admin- issued an order in January 2014 address- Thus, the government seeks to admit istrative Board; and 3) submitted on ing Martoma’s request to have the motions the Harvard Law School evidence whether appeal a phony report from a computer filed under seal and his related request to or not Martoma takes the stand. The case forensics firm (established by Martoma close from the public any hearing on the highlights, however, the age-old quandary himself) purporting to bolster Martoma’s papers. Martoma argued that sealing and faced by defendants and their attorneys claims. The government argues that this closure were appropriate because the Har- regarding the decision to testify in one’s evidence would be admissible under Fed- vard Law School evidence was “a source own defense at trial. eral Rule of Evidence 404(b) as evidence of great embarrassment” and risked taint- The Constitution provides that a defen- of the defendant’s capacity to destroy or ing prospective jurors. Weighing the right dant cannot be “compelled in any crimi- fabricate electronic forensic evidence. of public access to judicial proceedings nal case to be a witness against himself.” TUESDAY, FEBRUARY 4, 2014

Thus, the decision whether to take the relevant impeachment evidence can be come up with reasons to admit prior bad stand rests entirely with the defendant.10 excluded if the risk of unfairness to the act evidence, revealing that the govern- Further, when a defendant chooses to accused outweighs the probative value ment fully recognizes how such evidence remain silent, jurors are instructed of the evidence, the balance is routinely often can inflame a jury and tip the scales that they should draw no conclusions struck in favor of allowing admission of in favor of a conviction in an otherwise from that fact. Many believe that in this the impeachment evidence.11 close case. respect, however, the law belies human Conclusion nature and the natural instinct to believe that an innocent person should testify. Defense counsel may be reluctant Whether a criminal defendant should There are, however, a number of testify on his own behalf will always be legitimate and valid reasons a defendant to put a defendant on the stand if a fraught decision for the defense. But should not take the stand. According to they believe he will create a poor the Martoma case illustrates how the the noted criminal trial lawyer and Ford- impression or alienate the jury. government can try to launch an attack ham Law School Adjunct Professor Ron- on a defendant’s character regardless of ald P. Fischetti, in an interview with the In other instances a defendant’s whether he ever takes the stand. Even authors, “There are so many reasons why decision may be driven by the if the Harvard Law School evidence is not admitted at trial, Martoma’s prior a defendant should not take the stand consideration that facts, which that I think a defense attorney putting “bad acts” already are front and center them on the stand runs a real risk in otherwise would be inadmissible, and Martoma is required to adjust his the trial of a case.” Fischetti notes that would become admissible by vir- defense accordingly to avoid opening the when a defendant takes the stand, “his door to the implication that he somehow whole life becomes an issue for the gov- tue of his or her testimony. destroyed the “missing” evidence—a far ernment to try in front of the jury.” The leap from changing the date in an email focus of trial then becomes whether the On the flip side, when a defendant 14 years ago. jury believes the defendant rather than chooses not to testify, Federal Rule of ••••••••••••••••••••••••••••• whether the government has sustained Evidence 404(b) governs the limited cir- 1. Nate Raymond and Joseph Ax, “SAC’s Steinberg Found its burden of proof. cumstances in which a prosecutor can Guilty of Insider Trading,” Reuters (Dec. 18, 2013). 2. Indictment, United States v. Martoma, 12 Cr. 973 at ¶9 Another legitimate reason a defen- offer evidence of prior bad acts of the (S.D.N.Y.). dant may not testify at trial is because defendant. It allows for the admission 3. Id. at ¶¶10-11. 4. Id. at ¶11. defense counsel may be reluctant to of such acts only where the evidence 5. Sam Gustin, “Here’s Why Former SAC Trader Martoma put a defendant on the stand if they is used to prove motive, opportunity, Was Booted from Harvard,” Time.com (Jan. 10, 2014). 6. Government’s Motion In Limine to Admit Evidence Con- believe he will create a poor impression intent, preparation, plan, knowledge, cerning the Defendant’s Expulsion from Harvard Law School or alienate the jury. In other instances identity, absence of mistake, or lack of in Response to Potential Defenses, United States v. Martoma, a defendant’s decision may be driven accident. In other words, to prove the 12 Cr. 973 at p. 2 (S.D.N.Y. Jan. 9, 2014). 7. Defendant Mathew Martoma’s Memorandum of Law in by the consideration that facts, which admissibility of prior bad act evidence, Opposition to the Government’s Motion to Admit Evidence otherwise would be inadmissible, would the government must articulate how the Concerning Events Unrelated to the Charged Offenses and Preceding Mr. Martoma’s Employment at SAC,” United States become admissible by virtue of his or proposed evidence has a purpose other v. Martoma, 12 Cr. 973 at p. 2 (S.D.N.Y. Jan. 9, 2014). her testimony. A defendant may be loath than to reflect poorly on the defendant’s 8. Id. at p. 4 (emphasis in original). 12 9. 2014 WL 164181 (S.D.N.Y. Jan. 9, 2014). to take the stand if doing so creates character. This rule exists because evi- 10. Brown v. Artuz, 124 F.3d 73 (2d Cir. 1997). the possibility that a prior unrelated dence of other bad acts has a dangerous 11. John H. Blume, “The Dilemma of the Criminal Defen- dant with a Prior Record—Lessons from the Wrongfully Con- criminal record will be revealed. Finally, and inevitable tendency to distract the victed,” Journal of Empirical Legal Studies, Vol. 5, Issue 3 at truthful testimony actually may require jury or lead jurors to believe the defen- p. 477, 485 (Sept. 2008). a defendant to admit wrongdoing relat- dant is guilty this time because of his 12. United States v. Stein, 521 F.Supp.2d 266 (S.D.N.Y. 2007). 13. Huddleston v. United States, 485 U.S. 681 (1988). 13 ed to the pending charges. prior misconduct. 14. United States v. Hatfield, 685 F.Supp.2d 320 (E.D.N.Y. Once a defendant decides to take the For this reason, courts have held that 2010). 15. See, e.g., United States v. Gonzalez, 2009 WL 1834317 stand in his own defense, he is in the prior evidence of insider trading violations (S.D.N.Y. June 24, 2009) (conduct that occurred 13 to 18 same position as any other witness and cannot be submitted in an unrelated secu- years before the alleged crime irrelevant); United States v. 14 Garcia, 291 F.3d 127 (2d Cir. 2002) (rejecting probative value may be impeached in a variety of ways, rities fraud case. Further, courts have of conduct that occurred 12 years before the alleged crime). including perhaps with deceptive acts rejected prior bad act evidence where the in which he engaged while in law school length of time between the acts at issue over a decade ago. A defendant puts his and the charged conduct is extensive, credibility and character for truthfulness holding that the “temporal gap” dimin- Reprinted with permission from the February 4, 2014 edition of the NEW YORK at issue when he testifies. Although Fed- ishes the relevance of the prior acts.15 LAW JOURNAL © 2014 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 eral Rule of Evidence 403 dictates that Nevertheless, prosecutors often strain to or [email protected]. # 070-02-14-02