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Thursday, January 09, 2014

Today's White Collar News

I had hoped to say more about Bridgegate, including the recent news that the United States Attorney's Office in New Jersey has now offiically initiated an "inquiry," but then I was sidetracked by this report regarding Mathew Martoma's impending insider trading trial in Manhattan.  As of now, Dealbook is reporting that Martoma may have been expelled from Harvard Law School in 1999 (I graduated in 1996, so I never met him), and the reported "disciplinary action" may have had something to do with a "false transcript." Business Insider's previous dossier on Martoma reports that he left HLS in December 1998 and then resurfaced several years later at Stanford Business School. (Query: Did he tell Stanford why he left HLS? And, with a hat tip to one of the commenters on the Dealbook article, would he have been required to report the results of the HLS proceeding in any application for a license or job?).

Now, whether the government will in fact seek or be permitted to introduce some or all of this information at trial is a matter I will leave alone for now.  For me, the revelation offers a possible explanation for why Martoma has not yet "flipped."

Just to remind everyone who doesn't follow insider trading prosecutions, Mathew Martoma is one of several SAC Capital Advisors employees who have either been convicted or prosecuted for trading on material, non-public inside information, all resulting from a six-year investigation that has led to over 80 prosecutions.  SAC itself has also entered a guilty plea pursuant to an agreement that has yet to be approved by the presiding judge, and speculation continues as to whether Preet Bharara's office will seek a criminal indictment for SAC's billionaire founder and noted Picasso enthusiast, Steven A. Cohen. 

A number of observers have speculated on Martoma's failure to cooperate in the government's (presumed) prosecution of Steven Cohen.  After all, as I have discussed here, cooperators can and often do obtain fairly steep discounts on sentences otherwise recommended by the United States Sentencing Guidelines.  Moreover, as Peter Henning has pointed out here, the case against Martoma is a lot stronger than the one against SAC portfolio manager Michael Steinberg.  So, assuming Martoma in fact had enough damning evidence that he could have provided the government with "substantial assistance" in the prosecution of others (namely, Cohen), why would he give up that opportunity and instead takes his chances with trial?

Up until now, observers had assumed that Martoma was unwilling to become a "snitch," which in some circumstances can invite rather negative consequences (Caren Myers Morrison summarizes them quite nicely in this piece) for the cooperating defendant and his family.  But I have never found the social ostracization argument that persuasive in the white-collar context: when it comes to jail sentences, self-preservation beats country club membership pretty handily.  

Nevertheless, it is not so easy to cooperate if one has a history of telling tall tales, all of which can become rather important impeachment evidence when a defendant becomes a criminal cooperator. Cooperators need to be credible to juries, and credibility turns on truthfulness.  Juries accept that cooperators are themselves criminals; they even accept that cooperators hope to gain leniency by testifying against a co-conspirator. But there is a limit to the jury's willingness to accept the cooperator's word.  

Had Martoma cooperated, he would have had to disclose all of his prior history to the government, including any previous uncharged crimes or instances of falsehoods or cheating, which of course would have included previous disciplinary proceedings such as the one at Harvard.  And this would only have snowballed if, as asked above, Martoma misled other organizations regarding his academic career. Foolish and immature lies, including those nearly 15 years old, have a way of growing in size and importance, particularly when one lie links to another.   

Former and current prosecutors often say, "the government takes its witnesses as it finds them,"reflecting the imperfection - and humanity - of most witnesses.  But of course, the real situation is more nuanced than that.  The government takes some witnesses, and leaves others at the curb. We have no way of knowing how Martoma's previous history affected his inclination to serve as a cooperator, much less how it did or would have affected the government's inclination to use him.  But surely, this information, if it has been reported accurately, would have tarnished him in the government's eyes.   

Posted by Miriam Baer on January 9, 2014 at 04:17 PM | Permalink


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@Daveinsv: I agree with you that Roomy Khan did not have a great record for truth-telling, but Khan was used in an ongoing investigation that included wiretaps and consensually recorded telephone calls. Under circumstances like that, it doesn't matter how much of a liar the cooperator was (or still is): the defendant often sinks himself through his own words (helpfully memorialized on tape - or I guess digitized these days). Moreover, a cooperator who lacks credibility is not a problem if she leads the government (usually through an undercover investigation) to other cooperators. Anil Kumar is the "star" cooperator who helped the government convict Rajaratman at trial, but Roomy Khan helped the government in the much earlier stages of the investigation.

By contrast, with a historical case, the witness' credibility matters quite a bit. Now, there might have been a time when Mathew Martoma would have been able to participate in some "undercover" sting of Steven Cohen or others, but at least with regard to Cohen, I serious doubt it because news reports suggest that Cohen realized he might be the subject of a federal investigation by summer of 2009. (See this report here: http://dealbook.nytimes.com/2013/12/23/cohen-said-to-have-warned-friend-about-possible-federal-investigation/). Martoma was arrested in November 2012. By that time, the only cooperation Martoma could provide (assuming he believed himself guilty and had relevant information regarding others' crimes) was historical. All he could do was get up on a witness stand and swear to tell the truth.

By the way, if any of you readers find this a bit gross, I don't blame you. Cooperation has everything to do with luck and fate, and very little to do with the retributive notion of "desert."

Posted by: Miriam Baer | Jan 11, 2014 5:17:28 PM

Interesting and well-made points. However, in my opinion, since the government used Roomy Khan as a prosecution witness, and she admitted to various less-than-stellar behavior, and her testimony appeared to be readily believed by the jury, then I can only conclude that the government would have no hesitation to use Martoma with the confidence that the jury would find him credible, regardless of his Harvard past.

Posted by: daveinsv | Jan 11, 2014 1:56:33 PM

Good post, Miriam.

Posted by: Orin Kerr | Jan 9, 2014 5:06:45 PM

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