Martoma: Prior Bad Acts and Hobson's Choice for Defendants

G THE B IN EN V C R H E S 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 insider trading. 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 Raj Rajaratnam, or Rajat Gupta, 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 United States 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.

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