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United States v. Martoma

United States District Court, Second Circuit

June 5, 2013

UNITED STATES OF AMERICA,
v.
MATHEW MARTOMA, Defendant.

MEMORANDUM OPINION & ORDER

PAUL G. GARDEPHE, District Judge.

Defendant Mathew Martoma is charged with one count of conspiracy to commit securities fraud in violation of 18 U.S.C. § 371 and two counts of securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff, 17 C.F.R. § 240.10b-5, and 18 U.S.C. § 2. The gravamen of the Indictment is that from about 2006 through July 2008, Defendant directed trading activity for his hedge fund employer on the basis of material non-public information supplied by a doctor participating in a clinical trial of a drug for use in treating Alzheimer's disease.

On April 29, 2013, Defendant filed a motion for a bill of particulars pursuant to Federal Rule of Criminal Procedure 7(f). Defendant seeks information regarding the nature and timing of his alleged receipt of, and trades on, inside information, and the identities of all known co-conspirators. (Dkt. No. 23) For the reasons stated below, Defendant's motion will be granted insofar as the Government has agreed to identify Defendant's co-conspirators, but will otherwise be denied.

BACKGROUND

On November 20, 2012, Martoma was arrested on the basis of a twenty-one-page criminal complaint alleging one count of conspiracy to commit securities fraud in violation of 18 U.S.C. § 371 and two counts of securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff, 17 C.F.R. § 240.10b-5, and 18 U.S.C. § 2. (Dkt. No. 1) On December 21, 2012, a grand jury returned an indictment charging the Defendant with the same offenses. (Dkt. No. 7)

With regard to the conspiracy count, the Indictment alleges that from about 2006 through July 2008, Defendant developed a corrupt relationship with a doctor (the "Cooperating Witness" or "CW") participating in a clinical trial of a drug for use in treating Alzheimer's disease. (Indictment ¶¶ 7-8) The drug was under development by Elan Corporation PLC and Wyeth. (Indictment ¶ 4) The CW "served as the chair of the Safety Monitoring Committee (SMC')" for the clinical trial. (Indictment ¶ 5) During the 2006-08 time period, Defendant allegedly "arranged for approximately 42 consultations with the CW through [an] Expert Networking Firm[, ]" which is a "business that arranged for paid consultations between financial industry clients and experts in various fields[, ]" and which expressly advised participating clients and experts that they could not discuss information "not yet in the public domain." (Indictment ¶¶ 6, 8)

The Indictment alleges that, notwithstanding this instruction, "the CW provided [Defendant] with confidential [drug] safety data that had been disclosed to members of the SMC by Elan[, ]" and that "[b]ased in part on this Inside Information, [Defendant] bought shares of Elan and Wyeth stock for his own portfolio and recommended that [his hedge fund employer do the same]." (Indictment ¶ 8) The Indictment further alleges that on July 17, 2008, the CW provided Defendant with the confidential final results of the clinical trial, which indicated that the drug was not efficacious for Alzheimer's disease. (Indictment ¶¶ 9-10) The CW allegedly conveyed this information to Defendant during a lengthy telephone conversation on July 17, 2008, and also by sending him a confidential 24-slide PowerPoint presentation that the CW had received from Elan. (Indictment 9) According to the Indictment, on the basis of this new, negative information, Defendant "caused [his hedge fund employer] to sell virtually all of its approximately $700 million worth of Elan and Wyeth stock prior to the [p]ublic [a]nnouncement" of the clinical trial's final results, and to "engage in short sales' and various options trades designed to profit if the price of Elan and Wyeth securities were to fall after the [p]ublic [a]nnouncement." (Indictment ¶ 10) As a result of this trading activity, Defendant allegedly earned a $9.3 million bonus, and his employer's combined profits and avoided losses totaled approximately $276 million. (Indictment ¶ 11)

The Indictment also charges Defendant with two substantive counts of insider trading on the basis of his trading activity in Elan and Wyeth stock in July 2008 after he allegedly received inside information about the final results of the clinical trial. (Indictment ¶¶ 16-19)

The Government represents that "[o]n January 7, 2013 and January 15, 2013, [it] produced, with few exceptions, substantially all of the Rule 16 discovery then in its possession relating to the charges contained in the Indictment." (Gov't Br. 3-4) This discovery material was produced in a searchable database and includes materials from Defendant's hedge fund employer and the expert networking firm, including:

dates on which... [D]efendant and the CW met or were scheduled to meet, dates of [clinical trial] SMC meetings, ... the contents of confidential data presentations made by Elan to the members of the SMC in connection with these meetings[, ]... e-mails (to the extent retained...) reflecting communications between... [D]efendant, CW, and others about the [clinical trial] and complete detailed records of trading in Elan and Wyeth securities by... [D]efendant and others at the [h]edge [f]und [at which Defendant was employed].

(Gov't Br. 4)

On February 22, 2013, defense counsel sent a letter to the Government, requesting particulars for various allegations in the Indictment. (Apr. 29, 2013 Strassberg Decl. (Dkt. No. 25), Ex. D) The Government responded in a March 15, 2013 letter, which provides an overview of the Government's case and directs defense counsel's attention to certain discovery materials. (Dkt. No. 28)

On April 29, 2013, Defendant moved for a bill of particulars. (Dkt. No. 23) Defendant seeks particulars regarding:

(1) the specific substance of the alleged inside information and the dates on which [Defendant] allegedly received such information; (2) the manner in which the one specific instance of supposed information alleged in the Indictment was purportedly sent to [Defendant]; (3) [Defendant's] alleged trading - or the trading that he ...

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