United States v. Martoma
894 F.3d 64
| 2d Cir. | 2017Background
- Mathew Martoma, a SAC portfolio manager, was convicted of conspiracy and securities fraud for trading on confidential clinical-trial information about bapineuzumab (Elan and Wyeth), producing large gains for SAC and a $9M bonus for Martoma.
- Martoma obtained confidential information via paid consultations with doctors (notably Dr. Sidney Gilman and Dr. Joel Ross) who served on the trial’s safety monitoring committee and had duties to keep data confidential.
- Key events: Dr. Gilman was unblinded mid-July 2008, disclosed efficacy concerns to Martoma (July 17–19), Martoma alerted SAC and SAC reduced long positions and shorted, and stock prices fell after public presentation July 29–30, yielding substantial profits/avoided losses.
- At trial, the jury was instructed that a tipper’s personal benefit may be shown by financial or intangible benefits, including gifting information to develop/maintain friendship or networking contacts, or by an intent to benefit the tippee.
- On appeal Martoma argued the instruction conflicted with Second Circuit precedent (Newman) requiring a "meaningfully close personal relationship" to infer a gift-based personal benefit, and challenged sufficiency of personal-benefit evidence.
- The panel found the jury instruction inconsistent with Newman (because it allowed finding a gift-based benefit solely from aiming to develop a friendship), but held the error harmless: compelling evidence (Dr. Gilman received ~$70,000 in consulting fees and repeatedly provided confidential tips) established either a quid pro quo or an intent to benefit Martoma, so the conviction was affirmed.
Issues
| Issue | Plaintiff's Argument (Government) | Defendant's Argument (Martoma) | Held |
|---|---|---|---|
| Adequacy of jury instruction on personal-benefit/gift theory | Instruction valid; personal benefit may include developing/maintaining friendship or intent to benefit | Instruction failed Newman by not requiring a "meaningfully close personal relationship" to infer a gift-based benefit | Instruction was erroneous under Newman but error was harmless given alternative valid bases in the charge and strong evidence of benefit |
| Standard for proving personal benefit under Dirks (gift/intention/quid pro quo) | Personal benefit can be shown by intent to benefit tippee, quid pro quo, or gift to friend/relative; intent to benefit is a standalone ground | Newman requires a meaningfully close relationship for gift theory; intent alone insufficient absent objective relationship evidence | Panel adopts that intent to benefit is an independent, permissible basis under Dirks/Warde; Newman’s guidance limits gift-inference but does not eliminate intent-based proof |
| Effect of Newman and Salman on gift theory | Salman reaffirmed Dirks; Newman’s extra "pecuniary" gloss may be inconsistent with Salman; but need not resolve conflict here | Newman’s "meaningfully close personal relationship" requirement survives Salman and blocks conviction based on casual friendships or speculation about motives | Court avoids fully resolving Newman–Salman tension; treats Newman as constraining gift-inference but finds alternate evidence (fees/quid pro quo or intent) sufficient |
| Sufficiency of evidence of personal benefit | Sufficient: Dr. Gilman received consulting fees, repeatedly provided confidential information timed after committee meetings, and intended to benefit Martoma | Insufficient under Newman unless meaningfully close relationship shown; prosecutions rests on speculation about motive and relationship | Sufficient: either quid pro quo (consulting fees and pattern of paid tips) or intent-to-benefit inference supports conviction; rational juror could find elements beyond reasonable doubt |
Key Cases Cited
- Dirks v. S.E.C., 463 U.S. 646 (defining tipper/tippee personal-benefit test and gift theory)
- United States v. Newman, 773 F.3d 438 (2d Cir.) (articulating requirement of a "meaningfully close personal relationship" to infer gift-based personal benefit)
- Salman v. United States, 137 S. Ct. 420 (Sup. Ct.) (reaffirming Dirks and rejecting a pecuniary-only requirement for gift theory)
- United States v. Jiau, 734 F.3d 147 (2d Cir.) (quid pro quo–type relationships and non-pecuniary benefits can satisfy personal-benefit element)
- S.E.C. v. Warde, 151 F.3d 42 (2d Cir.) (holding intent to benefit recipient can satisfy personal-benefit element)