Trading with élan

By Ben Walsh
January 10, 2014

The trial of former SAC analyst Mathew Martoma began today. Prosecutors say the case is “not about science or trading… The case is about cheating”. Martoma’s lawyer countered that the government has simply charged an innocent person. “This case is like ‘The Exonerated’”, he said.

The prosecution’s case is that Martoma allegedly got information about an Alzheimer’s drug’s clinical trials from a doctor working on the trials. Martoma then allegedly used this information to recommend SAC short shares of the drug’s developers, Elan and Wyeth, netting $276 million for SAC when the shares slumped. The defense counters that there were many reasons to sell or short Elan and Wyeth, and that “insider trading is not one of them”. The prosecution, they say, is overly dependent on the doctor who allegedly gave Martoma the trial results and who has since been pressured, they claim, into cooperating with the government in exchange for immunity.

DealBook’s Matthew Goldstein and Alexandra Stevenson report that Martoma was expelled from Harvard Law for electronically altering his transcript, sending the forged document to 23 judges, and then fabricating emails and creating a “counterfeit report from a computer forensics firm” to conceal his actions. Alex Tabarrok points out that Martoma previously worked as a medical ethicist at the NIH, and that an undergraduate professor wrote in a letter of recommendation that “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”.

Martoma’s spokesman calls raising the expulsion a “transparent effort by the government to unduly influence the ongoing court proceedings”. Matt Levine reviews prosecutors’ motion to admit evidence of Martoma’s past and is unimpressed. The episode, Levine writes, “is truly, genuinely nuts”, and that’s precisely why it should be excluded: “Prosecutors should have to prove beyond a reasonable doubt that he actually did the thing they’re charging him with — not just rely on evidence of his general crookedness”.

The prosecutors assert that the facts around Martoma’s expulsion are germane: they claim it shows that he had the technical skills to delete records of him receiving inside information. White Collar Wire’s Jack Sharman points out that “such questions are usually handled at trial by each side offering computer-forensic experts”. The expulsion, Sharman writes, does little to inform the jury, and a lot to prejudice their view of Martoma. When treated as character evidence, he says, it fails to point to motive or intent.

Unfortunately for Martoma, the government has a very good record of winning insider trading cases of late. — Ben Walsh

On to today’s links:

The Fed
The Fed is not spooked – Jon Hilsenrath
Stanley Fischer is the official nominee to be Fed vice chair – Reuters

Pivots
How Silicon Valley became The Man – Justin Fox

Felix
The New York AG’s prosecution of BlackRock is an “utter farce” – Reuters

Primary Sources
Here’s today’s terrible jobs report: the US added just 74,000 jobs in December – BLS

Charts
The economy’s missing workers – EPI

So Hot Right Now
“If I could be ‘long’ chickens right now, that would be the trade of a lifetime” – Lydia DePillis

Wonks
Is Larry Summers right that we’re facing “secular stagnation”? – John Cassidy
Why market failures underlie our fears of “secular stagnation” – Brad DeLong
The most damning critique of DSGE – Noah Smith
“Saltwater DSGE macro, as best as I can tell, is just a kind of highbrow trolling” – Matt Yglesias
Tax price, not value – Steve Waldman

Nutters
“An accounting scheme to falsify walnut costs in order to boost earnings and meet estimates” – SEC

Data Points
“Women gained, on net, 75,000 jobs in December; men lost, on net, 1,000 jobs” – Catherine Rampell
Population distribution of the US in units of Canadas – Stephen Abram

History Repeating
Commodities warehousing carry trades: nothing to see here since at least 1921 – Izabella Kaminska

Some Good They Did
Weekly doses of Messi, Ronaldo, and Ibra: the good Murdoch and Berlusconi did for humanity – Simon Kuper

Great Headlines
“Things Used To Be More Genuine, Says Man From The ’90s” - The Awl

Happy Friday
The doomsday calendar – Know More

Alpha
Sell-side analysts work harder and are less accurate when the economy stinks – Bloomberg

FYI Re: Your Mortality
“Your probability of dying in during a given year doubles every eight years” – NPR

Housing
The best housing program you’ve never heard of – Barry Ritholtz

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