Past Fictions, a Lack of Trust and No Deal in SAC Case

The guilty verdict on Thursday against the former SAC trader Mathew Martoma only deepens a mystery about the case: Given the overwhelming evidence against him, why did he fight the charges of insider trading, risking a lengthy prison term, rather than make a deal with the government to cooperate in return for leniency?

After all, Mr. Martoma seemed uniquely positioned to make a favorable deal for himself. He had a 20-minute conversation with the head of SAC Capital Advisors, Steven A. Cohen, the night before Mr. Cohen reversed the firm’s position on two drug companies, Elan and Wyeth, and made a bet that netted the firm $275 million. What did the two men discuss?

And testimony at Mr. Martoma’s trial also suggested that Mr. Cohen is the man the government wanted all along. Prosecutors must have been desperate to hear Mr. Martoma’s version of the 20-minute conversation in return for some kind of deal.

The answer to the mystery may lie in a long-buried confidential report from a disciplinary proceeding at Harvard Law School.

In a motion dated Dec. 6 of last year, the government revealed that Mr. Martoma had altered his transcript to improve his grades, and had used the fabrication to seek prestigious judicial clerkships. He was subsequently expelled from Harvard Law.

That alone wouldn’t have shattered Mr. Martoma’s value to prosecutors. Few cooperating witnesses are Eagle Scouts, especially when they have been participating in what amounts to a criminal conspiracy. However brazen, the Harvard episode might have been portrayed as a serious but youthful transgression by someone overeager to get ahead. Just because someone has done something bad in the past doesn’t mean they’re not telling the truth now.

But how Mr. Martoma handled the Harvard affair, detailed in the confidential report by the law school’s administrative board after what appeared to have been lengthy proceedings, may well have proved devastating to his credibility, and thus to his ability to cut a favorable deal.

“His whole story was a fabrication and then he lied to try to get out of it,” said Bradley J. Bondi, head of the securities enforcement and investigations practice at Cadwalader, Wickersham & Taft, who read the Harvard report. “As a prosecutor, would you want to put this guy on the witness stand? Defense lawyers would make mincemeat out of him.”

Said another former prosecutor, who represented a cooperating witness in the SAC investigation and therefore did not want to be identified, “What’s so spectacular here is the sheer number of lies and deceitful acts. He’s toast when it comes to cooperation.”

According to the Harvard report, the law school registrar, Stephen Kane, summoned Mr. Martoma — whose name was then Ajai Mathew Thomas — to his office on Feb. 1, 1999. A clerk to a federal judge had reported that Mr. Martoma’s transcript seemed to be incorrect. Mr. Kane checked the grades and discovered that they had been altered.

Mr. Martoma admitted to Mr. Kane that he had used the computer system to alter his transcript. But, Mr. Martoma told Mr. Kane, “It was all a joke,” according to a transcript of the Harvard board’s proceedings. That same day, Mr. Martoma also told the school’s dean of students that the fake transcript was “a joke,” adding that he “really did not intend to pursue a clerkship.”

Mr. Martoma insisted that the only reason he altered his transcript in the first place was to impress his demanding parents. (This and other details are from the report, attached as an exhibit to the government’s motion to admit evidence of Mr. Martoma’s expulsion from the law school at his trial. The judge denied the motion, and the jury never learned about it.)

His parents were “ecstatic” at his good grades when he showed them the fake transcript on Christmas Eve, according to his testimony before the board. But a few days later, suffering from pangs of conscience that what he’d done “was wrong,” he claimed he confessed and told them the truth — both his real grades and that he’d altered his transcript.

The Harvard report is silent as to how his parents reacted to that bombshell.

At the time, Mr. Martoma was applying for judicial clerkships. He submitted 23, a number that seems hard to square with someone who didn’t really want one. All the applications contained the altered transcript of his grades.

Mr. Martoma blamed his younger brother. Mr. Martoma said he was rushing to a job interview in California and asked his brother to assemble his clerkship application materials, including his real transcript, which he told his brother was in a filing cabinet. (All the other materials were on Mr. Martoma’s desk, as was the false transcript. He offered no explanation as to why the accurate transcript alone would have been somewhere else.) Instead of going to the filing cabinet as instructed, Mr. Martoma’s brother unwittingly put the false transcript with the other application materials and duplicated them. His mother put the packages in the mail.

Mr. Martoma testified that when he learned that the wrong transcript had been sent, he confronted his brother and was “extremely angry.” The two “had a huge argument,” he said.

But Mr. Martoma’s brother, who testified before the Harvard board (as did Mr. Martoma’s parents) and otherwise appears to have corroborated Mr. Martoma’s account, had no memory of any such encounter. His brother testified that when Mr. Martoma learned that he’d sent the wrong transcript, Mr. Martoma “just left the room.”

On Jan. 26 and 27, the week before he was confronted by Harvard, Mr. Martoma interviewed with three judges on the prestigious District of Columbia Court of Appeals: Douglas H. Ginsburg, David B. Sentelle and Arthur Randolph.

Although Mr. Martoma knew then that the judges had received the altered transcripts with his inflated grades, he said nothing about the matter during his interviews, and didn’t offer a corrected transcript. The reason, he insisted, was that the issue was moot. He no longer wanted a clerkship and was deliberately trying to sabotage the likelihood of getting one by performing poorly at the interview.

To back this version of events, Mr. Martoma offered an email to a Harvard employee dated Feb. 1, the day before he was summoned by the registrar, indicating that he no longer wanted a clerkship. There was evidence that the email was doctored to produce a false date. Harvard’s server indicated the email had actually been sent late on Feb. 2, after he was confronted with the false transcript.

Similarly, Mr. Martoma told Harvard’s dean of students that he had already sent letters to the judges, withdrawing his applications. The letters themselves were dated Jan. 31, consistent with this claim. But they were postmarked Feb. 3 — after the false transcript was exposed. When confronted with this discrepancy, Mr. Martoma changed his story. He said he had written, addressed and stamped the letters on Jan. 31, but hadn’t yet put them in the mail.

If Mr. Martoma was really trying not to get a job offer, he didn’t do a very good job. One of the three judges was so impressed with Mr. Martoma that he personally called him to offer a clerkship. (Mr. Martoma didn’t return the call. By then, he was already in trouble.) A second judge nearly gave him an offer; he described Mr. Martoma as the runner-up. All three judges said they discerned nothing in his demeanor or remarks to suggest he didn’t want the clerkship.

Moreover, Mr. Martoma sent an email about a professor’s recommendation on the morning of Feb. 1, just hours before he was confronted, that read, “just checking to make sure that everything is in order for clerkship stuff.”

In sum, Mr. Martoma wanted Harvard to believe he altered his transcript for the harmless reason of impressing his parents; that he never intended for the judges to get the false transcript, and they received it only because his brother sent it by accident; that he didn’t say anything in his interviews with the judges because he no longer wanted a clerkship; and that various backdated documents support his story.

Does any of this even rise to the level of “the dog ate my homework”?

In deciding to expel him, Harvard concluded that “most members of the board have considerable problems” with Mr. Martoma’s account. His “manner before the board did not lend credence to his account.” It added, “The board was impressed also by the cumulation of improbable occurrences in his account, which made it more difficult to accept his explanation of individual events.”

That would seem to be putting it mildly.

The board concluded that Mr. Martoma “falsified his transcript, interviewed with judges under false pretenses, and gave untruthful answers to administrators at the Law School.”

Now that he’s been found guilty of insider trading, Mr. Martoma might decide to reveal what was discussed in the phone call with Mr. Cohen, perhaps in an effort to get a reduced sentence. But would anyone believe him?

“The Harvard material is devastating,” a former United States attorney told me this week. “And in a criminal context, where you need proof beyond a reasonable doubt, it’s even worse.” (The former prosecutor asked not to be named because of ties to the criminal defense bar, including Mr. Martoma’s lawyers.)

And even if they believed him, unless Mr. Martoma had strong corroborating evidence, like contemporaneous notes or, even better, a tape recording, his testimony would be of little use.

One of Mr. Martoma’s lawyers, Richard M. Strassberg, declined to comment.

Mr. Martoma had the opportunities to succeed in life that most people can only dream of, without having to resort to cheating, lying or breaking the law. He now faces extended jail time — seven to 10 years. He has a wife and three children. Perhaps he’ll show up on Mr. Cohen’s doorstep one day, hoping his silence was appreciated. The message from every criminal defense lawyer I spoke to was that he shouldn’t count on it. Mr. Cohen would be crazy to have anything further to do with him.

Harvard did cite some mitigating circumstances it considered before expelling Mr. Martoma. Among them: He was a co-founder of the school’s Society of Law and Ethics.