Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street

by Sheelah Kolhatkar

  “Dr. Gilman, you also told the agents in this meeting that you wanted to cooperate with their investigation,” Strassberg said. “Do you remember that?”

  “Yes,” Gilman said.

  “And it’s fair to say that in the entire interview that happened between the FBI agents and you, they never mentioned any other client but Mathew Martoma, correct?”

  “I believe that’s correct,” Gilman replied.

  As Strassberg moved on to his next set of questions, Gilman started to fidget in his seat. There was something more he wanted to say. He asked the judge if he could return to the previous question because he hadn’t answered fully.

  “No, Dr. Gilman,” Strassberg snapped. “Your Honor, I would ask that Dr. Gilman answer the questions that I am asking.”

  But Judge Gardephe was intrigued. He told Gilman that he could answer again. The doctor took a deep breath.

  “The agent also mentioned that I am only a grain of sand, as is Mr. Martoma,” Gilman said in a clear voice. “They are really after a man named Steven A. Cohen.”

  There were gasps in the courtroom. The prosecutors, the judge in his robes, the bus drivers and actuaries in the jury box—it was as if they were all playing a role in the prosecution of Martoma, when the real story was about Cohen. He was the target, the one the FBI wanted, the person Martoma was supposed to have testified against in order to save himself. The lawyers and the judge had taken pains to keep Cohen’s name out of the proceedings, but Gilman was too old, and had too little left to lose, to care about any of that. For a moment, he yanked back the curtain and showed everyone what was really going on.

  —

  Though Cohen’s complicity in Martoma’s crime was never addressed directly in the trial, his name came up repeatedly. When Chandler Bocklage, Cohen’s research trader and “right-hand man,” in the words of Martoma’s lawyers, took the stand for the defense, he said: “I personally think that Steve is the greatest trader of all time.” Every time Cohen’s name was mentioned, Devlin-Brown grew more annoyed. His goal, for the moment at least, was to convict Martoma. Having a villain popping up in the background was muddying their case.

  Judge Gardephe had repeatedly told both sets of attorneys not to bring Cohen’s name up for the same reason. He was a billionaire who had made most of the money and the decisions at SAC and who was paying for Martoma’s defense. It was strange, but for the purposes of Martoma’s trial, it was his duty to try to eliminate distractions. “General questions about how Steve Cohen conducted his trading, I think, are very dangerous,” Gardephe said during a discussion out of earshot of the jury. “They represent a risk of opening the door to a broader examination of how Steve Cohen did business. And I think we all agree that that is not a path we want to go down.”

  During closing arguments, Devlin-Brown’s co-prosecutor, Eugene Ingoglia, again walked the jurors through the timeline, from Martoma’s career at SAC to his cultivation of Gilman as a source and, finally, to his visit to see the slides from the big ICAD presentation in Gilman’s office in Michigan. “Steven Cohen and Mathew Martoma talked for twenty minutes on Sunday,” Ingoglia said. “How do we know what they talked about? Right after the phone call, Martoma emails Cohen the lists of the total number of shares in every account. The next day, over four days, they sold all of their shares. In secret.”

  Then it was Strassberg’s turn. He stood up and looked at the jury. “Steven Cohen is not on trial,” he said. “Steven Cohen is not even alleged to be a co-conspirator. Mathew is not Steven Cohen. Steven Cohen is not here. What Mr. Cohen did is Mr. Cohen’s business.”

  It was true, of course. But coming from the mouth of a lawyer who was being paid by Cohen, it was suspect. Martoma had taken advice about whether he should cooperate with the government and testify against Cohen from a lawyer whose fees were being paid by Cohen. It was largely because of Martoma’s refusal to cooperate, the prosecutors believed, that Cohen was not on trial himself. To some, a system that allowed such an arrangement seemed corrupt.

  Strassberg’s closing statement lasted more than two and a half hours. After about forty-five minutes, the jurors began to look put out as he repeated the same points over and over. Then he inhaled deeply. “Mathew’s hopes, his family’s hopes, will be forever altered by what happens here,” he said. “This has been hell for Mathew, his wife, his kids, and his parents. He is not a grain of sand, he is not a means to make a case against Steven Cohen.” As he talked, tears rolled down Rosemary’s cheeks.

  When the jurors returned to deliver the verdict at 1:51 P.M. on the third day of deliberations, it was immediately obvious what they were about to say. Not one looked toward Martoma’s side of the courtroom. Rosemary sobbed as the foreman read the result: guilty on all three counts.

  Martoma’s parents looked stunned as they shuffled out a back door and into the cold. For Martoma’s father, hearing the word guilty after every count felt like three bullets going through his heart.

  When the stories were written the next day, it appeared that a very rich man who controlled one of the largest hedge funds in the world had parted with a negligible fraction of his wealth and skated free from personal culpability. Steve Cohen would continue trading stocks and buying art. All that was left for the prosecutors to do was to make an example of Martoma and claim victory even though they had not reached their ultimate goal.

  —

  To an outside observer, the Martoma case had never made much sense. Martoma had been given ample opportunity to testify against his former boss in exchange for a lighter sentence, and he had refused. Instead, he went through a humiliating trial and now faced more than ten years of jail time. Why? It was the question that surrounded his case for three years. Federal prosecutors who had pursued Steven Cohen for almost a decade were certain that Martoma had information to incriminate him. People charged with crimes like Martoma’s who were facing long sentences almost always flipped. Why hadn’t Martoma played along?

  There was always the possibility that he didn’t have any incriminating information about Cohen. But, even still, whatever he did have would likely have brought him a reduced sentence. The puzzling thing was, he didn’t even try. There were three theories that were most commonly discussed.

  The first was honor. Perhaps Martoma simply could not accept the idea of being an informant. Such a principled stand was highly unusual in white collar cases, and for someone with Martoma’s history it seemed particularly implausible. Could this be the moment when he suddenly chose the righteous path?

  The second was fear. Perhaps Martoma believed he would face some kind of retribution if he crossed Cohen. This, too, was hard to accept. Martoma had already left the financial industry, and for all his ruthlessness as a businessman, there was no evidence that Cohen had ever employed the loyalty enforcement methods of an actual gangster.

  Another hypothesis, the one that was mentioned most often by those involved in building the case, was material self-interest, or that Martoma harbored a desperate hope that Cohen would repay his loyalty. There was no evidence to support this theory, but it was easier to grasp than the others. Money, in the end, is what drives most people on Wall Street, and the case had left Martoma financially ruined. The government ordered him to forfeit his and Rose’s house in Boca Raton, $3.2 million in an American Express Bank account in Martoma’s name, $245,000 in an ING Direct account in Rosemary’s name, as well as $934,897 that was left in the Mathew and Rosemary Martoma Foundation. It turned out that, after establishing the foundation as a nonprofit in 2010 and depositing $1 million into the account and talking about devoting themselves to charity, the Martomas had received a tax benefit for the gift and then barely gave any of the money away. That same year they charged $22,826 in travel and other expenses to the foundation. Everything that was left in the account would be going to the government.

  Rosemary argued that she and the children were at risk of ending up on the street. Neither of their families had the resources to help them, she p
leaded to the judge through various court filings.

  The logistics of Cohen funneling resources to the Martomas would be tricky, to say the least. (It would also be illegal, the most blatant form of witness tampering.) Government accountants would quickly seize on any mysterious sources of income. Even though there was no evidence, observers of the case couldn’t resist speculating that something was going on. Rosemary didn’t exactly quell the rumors when she said, in tortured legalese: “There is not, and never was, and never will be, any discussion of Steve Cohen taking care of us.” It sounded to some like a line that had been fed to her by a lawyer. For now, Martoma’s motivations remain a mystery.

  —

  During the weeks leading up to the sentencing hearing, the Martoma family fell into a state of anguish. Their nightmare had finally come true. Among the most painful blows was a letter from Stanford stripping Martoma of his business degree for having lied on his application.

  Nonetheless, Rosemary threw herself into asking friends, colleagues, and relatives to send letters of support to the judge determining Mathew’s sentence. Mathew put aside his pride and asked his former ethics professor at Duke, Bruce Payne. Payne felt bad for his former student, someone he’d once considered a friend, though he also knew that Martoma had deceived him when he asked him to write recommendation letters to Stanford’s business school without disclosing what had happened at Harvard. This was too great a transgression. Payne told Martoma he couldn’t do it.

  Largely due to Rosemary’s efforts, however, plenty of others did send letters, dozens of cousins, uncles, and aunts, many of whom were medical doctors, some from as far away as India. Their letters featured several recurring themes: that Mathew’s incarceration would unfairly punish his three young children, that Rosemary was a fragile person who would be devastated if Mathew were sent away, and that she wouldn’t be able to care for their children on her own. Some argued that Martoma had already suffered enough. There were allusions to an ailment Rosemary suffered that made her weak—it sounded practically Victorian, and didn’t fit the forceful personality who had been so deeply involved in Martoma’s defense. The prosecutors were dismissive when they read about it. As Devlin-Brown later pointed out, there weren’t any letters from a doctor or a psychiatrist confirming the diagnosis.

  Martoma’s father, Bobby, wrote an impassioned thirteen-page letter, including photos of Martoma as a young child, smiling and wearing a pin-striped suit and necktie. After describing his searing paternal disappointment when Martoma didn’t attend Harvard for his undergraduate education, Bobby wrote: “Almost 22 years later, today, I feel, maybe I pushed him too far to accomplish my dream. We pressed him to excel until he maxed out.”

  Rosemary knew the odds were against her husband. Strassberg and Braceras had tried, as sensitively as possible, to prepare her for what was coming. Jail terms in insider trading cases were often severe. Rajaratnam had been sentenced to eleven years, for example, and a Galleon trader named Zvi Goffer had gotten ten. Still, she clung to the hope that Mathew might be spared. She prayed for it every day.

  At 3:30 P.M., on September 8, 2014, Martoma again stood before Judge Gardephe, waiting to hear what would happen to him. According to the sentencing guidelines, he faced up to nineteen and a half years in prison.

  The judge recapped the damning narrative: the phone call between Gilman and Martoma on July 17, 2008, when they reviewed the PowerPoint slides; Martoma’s flight to Detroit and his meeting with Gilman in his office; the twenty-minute phone call with Cohen the next day; SAC’s secret sales of all of its Elan and Wyeth shares the next week. While the government never named Cohen in the case, he was central to the story of Martoma’s crime.

  “Given this sequence of events,” Gardephe said, “it is much more likely than not that Cohen did, in fact, receive material, non-public information from Martoma.” For the purposes of sentencing, Martoma could be held responsible for all of it.

  “Mr. Martoma has been ruined by this prosecution,” the judge said. And yet, he added, in order for his case to deter others, “I find that a substantial sentence of imprisonment is necessary.”

  Rosemary hung her head. Gardephe paused. He seemed genuinely saddened by what he was about to do. “I intend to impose a sentence of nine years’ imprisonment.”

  It took a moment for this to sink in. Nine years. Rosemary started to cry.

  There was a long moment of quiet after the judge left. Then Rosemary took Mathew’s hand and they walked out of the courtroom.

  —

  Martoma’s parents had stayed quiet for months, pushing bravely through a crowd of photographers on their way in and out of the courthouse every day, never saying a word. Staggering out into the bright sunlight after the verdict, however, they exploded with rage.

  “He was framed!” shouted Lizzie Thomas, Martoma’s mother, at the base of the courthouse steps. Her eyes were blazing. She couldn’t take it anymore.

  “I’m his father,” Bobby Martoma said, standing beside his wife. “If the prosecution knew, when the two agents approached in Boca Raton, three years ago—if they knew that Mathew was guilty, why did they tell him that they wanted to recruit him as an informant? What was the reason?” Bobby went on, “If he was guilty, they should have said, ‘You are guilty, we are going to proceed with the case! Instead they said, ‘We want to recruit you.’…

  “He was framed,” Bobby continued. “Who made the money? Somebody made $275 million, and they put all the blame on Mathew! Today the judge put all blame on him. That judge, there was no justice from that judge. This was nothing but a mockery. This is the U.S. system.”

  “Who made the money?” Lizzie interjected. “My son made $9.3 million out of that, and $3 million went for the tax.”

  Why, then, someone asked, didn’t Mathew cooperate with the prosecutors and help himself? Why didn’t he help them get the man who made the money, Steve Cohen?

  “You want me to tell you?” Bobby answered, jabbing his finger in the air with righteous anger. “Because he believes in the Ninth Commandment. You know what is the Ninth Commandment? Thou shall not bear false witness against thy neighbor.”

  “The person who made the money is on a yacht,” Lizzie said, in apparent reference to photographs Cohen’s wife had posted online that summer of their sailing trip around Greece. “And my son is going to jail.”

  “This is not justice,” Bobby said.

  EPILOGUE

  On May 11, 2015, eight months after Mathew Martoma was sentenced, Christie’s hosted a special themed evening sale for the world’s top art collectors at its headquarters at Rockefeller Center. The auction was called “Looking Forward to the Past,” and it was built around a carefully selected group of twentieth-century masterpieces, a mix of contemporary and slightly older works that, during a time before hedge fund moguls had turned art acquisition into a competitive sport, might have lived in major museums. The big prize of the evening was a Picasso painting called Les Femmes d’Alger that was expected to sell for $140 million. In all, the night was anticipated to be a record-breaking sale, a coda to a worldwide boom in the art market fueled largely by Wall Street money and exploding wealth in Asia. One of the paintings going up for sale was from Cohen’s collection, Paris Polka, by Jean Dubuffet, which had an estimate of $25 million.

  While his former protégé Martoma was appealing his conviction and preparing for a new life behind bars, Cohen had been anything but quiet. With assurances from his legal team that the threat of criminal charges was all but gone, he started to move aggressively to show the world that he was still as powerful as ever. He made a trip to Davos and sat courtside at Madison Square Garden, in full view of the television cameras. On November 10, the day Martoma was supposed to start serving his prison term, Cohen made news by spending $101 million at Sotheby’s to buy an Alberto Giacometti sculpture called The Chariot.

  “Steve is a very serious, very astute collector,” gushed William Acquavella, one of Cohen’s art dealers, in The Ne
w York Times. “He also has just the right instincts, ones that can’t be learned from reading art history books.”

  Cohen had been working to cleanse his reputation on Wall Street as well, trying to create distance between himself and the legal scandal. As required by the criminal settlement with his company, Cohen had closed SAC and turned it into a private family office that invested only his own money, close to $10 billion. It was important to him, that $10 billion figure.

  In April 2014, three months after Martoma was convicted, Cohen changed his firm’s name from SAC Capital Advisors to Point72 Asset Management, a reference to its address at 72 Cummings Point Road in Stamford. He also removed his top associates and advisors who had helped guide him through his legal troubles. Steven Kessler, SAC’s head of compliance, left, as did Tom Conheeney, SAC’s president. Sol Kumin, Cohen’s director of business development, who had been involved in hiring many of the traders who got into legal trouble, also moved on and started his own hedge fund. Cohen looked for a new head of compliance, and a recruiter contacted several prosecutors and FBI agents who had been involved in the investigation of SAC.

  Eventually, Cohen hired a former Connecticut U.S. Attorney to be Point72’s general counsel and announced plans for a six-person “advisory board” that would be made up of high-profile business leaders who would advise the firm on management and ethics issues. In a bit of dark comedy, Cohen started a program for college students called the Point72 Academy, a “highly-selective and rigorous 15-month training program” that purported to teach investment strategies to young people seeking careers in finance.