United States v. Martoma

869 F.3d 58 (2nd Cir. 2017)

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Nature of the Case

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Facts

D's convictions emanate from an insider trading scheme involving securities of two pharmaceutical companies, Elan Corporation, plc ('Elan'), and Wyeth. They were developing an experimental drug called bapineuzumab to treat Alzheimer's disease. D worked as a portfolio manager at S.A.C. Capital Advisors, LLC (SAC). D managed an investment portfolio with buying power of between $400 and $500 million that was focused on pharmaceutical and healthcare companies. While at SAC, D began to acquire shares in Elan and Wyeth in his portfolio and recommended that Cohen acquire shares in the companies as well. To obtain intelligence about bapineuzumab, D contacted expert networking firms and arranged paid consultations with doctors knowledgeable about Alzheimer's disease, including two who were working on the bapineuzumab clinical trial. Dr. Gilman, chair of the safety monitoring committee for the bapineuzumab clinical trial, participated in approximately 43 consultations with D at the rate of around $1,000 per hour. Dr. Gilman had an obligation to keep the results of the clinical trial confidential. He nevertheless provided D, whom he knew was an investment manager, with confidential updates on the drug's safety that he received during meetings of the safety monitoring committee. Dr. Gilman also shared with D the dates of upcoming safety monitoring committee meetings, which allowed D to schedule consultations with Dr. Gilman shortly after each one. Dr. Ross, one of the principal investigators on the clinical trial, met with D on many occasions between 2006 and July 2008 and charged approximately $1,500 per hour. Dr. Ross had an obligation to maintain the confidentiality of information about the trial. Dr. Ross provided D with information about the clinical trial, including information about his patients' responses to the drug and the total number of participants in the study, that Dr. Ross knew was not public. An Elan and Wyeth press release described the preliminary results as 'encouraging,' with 'clinically meaningful benefits in important subgroups' of Alzheimer's patients with certain genetic characteristics, but indicated that the drug had not proven effective in the general population of Alzheimer's patients. It stated that the results of the trials would be presented in greater detail at the International Conference on Alzheimer's Disease to be held on July 29, 2008. Elan's share price increased following the press release. Dr. Gilman was to present the results at the July 29 conference. Dr. Gilman identified 'two major weaknesses in the data' that called into question the efficacy of the drug as compared to the placebo. Dr. Gilman spoke with D about what he had learned. Two days later at a face to face meeting, Dr. Gilman showed D a PowerPoint presentation containing the efficacy results and discussed the data with him in detail. D and Cohen had a telephone conversation lasting about twenty minutes. D emailed Cohen a summary of SAC's Elan and Wyeth holdings. SAC began to reduce its position in Elan and Wyeth securities by entering into short-sale and options trades that would be profitable if Elan's and Wyeth's stock fell. D and Cohen had a telephone conversation lasting about twenty minutes. D emailed Cohen a summary of SAC's Elan and Wyeth holdings. SAC began to reduce its position in Elan and Wyeth securities by entering into short-sale and options trades that would be profitable if Elan's and Wyeth's stock fell. Dr. Gilman publicly presented the final results and Elan's share price began to decline and at the close of trading the next day, the share prices of Elan's and Wyeth had declined by about 42% and 12%, respectively. D and Cohen made $80.3 million in gains and avoided $194.6 million in losses. D personally received a $9 million bonus based in large part on his trading activity in Elan and Wyeth. D was indicted and tried for insider trading. The district court instructed the jury that: “If you find that Dr. Gilman or Dr. Ross disclosed material, non-public information to D, you must then determine whether the government proved beyond a reasonable doubt that Dr. Gilman and Dr. Ross received or anticipated receiving some personal benefit, direct or indirect, from disclosing the material, non-public information at issue. The benefit may, but need not be, financial or tangible in nature; it could include obtaining some future advantage, developing or maintaining a business contact or a friendship, or enhancing the tipper's reputation. A finding as to benefit should be based on all the objective facts and inferences presented in the case. You may find that Dr. Gilman or Dr. Ross received a direct or indirect personal benefit from providing inside information to D if you find that Dr. Gilman or Dr. Ross gave the information to D with the intention of benefit[t]ing themselves in some manner, or with the intention of conferring a benefit on Mr. Martoma, or as a gift with the goal of maintaining or developing a personal friendship or a useful networking contact.” D was convicted and appealed. During appeal the court ruled on Newman: “The Court noted that personal benefit is broadly defined. To the extent Dirks suggests that a personal benefit may be inferred from a personal relationship between the tipper and tippee, where the tippee's trades 'resemble trading by the insider himself followed by a gift of the profits to the recipient,' we hold that such an inference is impermissible in the absence of proof of a meaningfully close personal relationship that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature.” Based on Newman, D challenged both the sufficiency of the evidence presented at his trial and the adequacy of the instructions given to the jury. D argues that he and Dr. Gilman did not have a 'meaningfully close personal relationship' and that Dr. Gilman had not received any 'objective, consequential . . . gain of a pecuniary or similarly valuable nature' in exchange for providing confidential information.