New York Times columnist James Stewart had an excellent piece on Saturday about Mathew Martoma, the former portfolio manager at SAC Capital Advisors charged with insider trading who, as Stewart put it, "may -- or may not -- be in a position to implicate Steven A. Cohen, the hedge fund's billionaire founder and owner."
Martoma has said he is innocent. He has refused to cooperate with the government. And if I had to make a wager on whether he is in a position to implicate Cohen, I would bet that he isn't. The reason I say this can be found in a paragraph toward the end of the government's original complaint against Martoma last November, which I'll get to in a moment.
But first, a little backdrop. As Stewart explained in his column, Martoma is the only former SAC trader identified by the government as having had direct dealings with Cohen concerning suspicious trades. The government has said that Martoma and Cohen had a 20-minute telephone conversation the day before SAC began trading in shares of two drug companies, Elan Corp. and Wyeth, based on confidential information that Martoma had received from a doctor who worked as an adviser to Elan. It's a mystery what Martoma and Cohen said during that chat. Prosecutors have accused Martoma of making $276 million in profits and avoided losses for SAC based on inside information about the companies.
This is the section from the complaint against Martoma that I was referring to. (The hedge fund cited is SAC):
In or around early January 2009, the hedge fund assessed the bonus to be paid to Martoma for the preceding year. Martoma was paid a total of approximately $9,380,435 by the hedge fund, which in large part was attributable to the results of the hedge fund's trading in Elan and Wyeth. By contrast, Martoma received no bonus for his work in 2009 (a year in which his portfolio lost money). On or about May 5, 2010, a hedge fund employee e-mailed a recommendation that Martoma be fired after continuing to lose money that year, stating in the e-mail that Martoma appeared to be a "one trick pony with Elan." Martoma's employment with the hedge fund was subsequently terminated.
Here's what gets me about that paragraph. Let's say, for argument's sake, that Cohen knew the whole time that Martoma's recommendations on Elan and Wyeth were based on inside information. In that case, Cohen would have been crazy to fire Martoma. (Or to let anyone else at SAC fire him.) When a supervisor conspires with an underling to commit a crime, the dumbest thing the boss can do is cast that person loose and risk angering him.
To paraphrase a line that President Lyndon Johnson once used to describe FBI Director J. Edgar Hoover, it's better to have him inside the tent pointing out, than outside the tent pointing in. (Johnson's version of the quote was more colorful.)
On the other hand, if Cohen had no reason to believe that Martoma's recommendations on Elan and Wyeth were based on inside information, then it would have made sense to can him for poor performance. The "one trick pony" tag would have been fitting.
Is it possible that Cohen could have been so dumb and so arrogant that he would fire and deliberately lose control over someone who was an eyewitness to his own criminal acts? I suppose it is, but I'm skeptical. We may learn more soon enough. The deadline for prosecutors to file criminal charges against Cohen over the trades in Martoma's case is in mid-July.
(Jonathan Weil is a columnist for Bloomberg View. Follow him on Twitter.)