Martoma Starts Serving 9-Year Sentence for Insider Trading

Updated, 5:29 p.m. |

Mathew Martoma has started his nine-year prison term for insider trading at a “low security” federal prison in Miami at a time that most of the former hedge fund traders and analysts also convicted in the federal government’s long-running investigation have paid their debt to society.

Mr. Martoma, 40, reported on Thursday to the Federal Correctional Institute in Miami and is scheduled to be released on Sept. 20, 2022. Mr. Martoma, the married father of three young children, is appealing his conviction. The trial judge had directed the Federal Bureau of Prisons to send him to the minimum-security “camp” section of the prison.

Earlier this year, a jury convicted Mr. Martoma on charges that he used inside information to generate profits and avoid losses totaling $275 million while working for Steven A. Cohen’s hedge fund, SAC Capital Advisors. Mr. Martoma is one of more than 85 people who have either pleaded guilty or been convicted at trial in the federal government’s crackdown on insider trading in the hedge fund industry.

Yet just a handful of the more than two dozen hedge fund analysts and traders sentenced to serve time in prison remain in federal custody. One reason is that many of the initial arrests and guilty pleas came in 2009. Most of those who got prison time were sentenced, on average, to less than two-year terms. Many more got little or no jail time for cooperating with the investigation led by the Federal Bureau of Investigation and the United States attorney for the Southern District of New York.

Some of the more notable inmates still doing jail time include Raj Rajaratnam, the co-founder of the now-defunct hedge fund, the Galleon Group, and Rajat Gupta, the former Goldman Sachs board member who was convicted of passing on inside information to Mr. Rajaratnam. Both men are being held at the Federal Medical Center in Devens, Mass. Mr. Gupta is scheduled to be released on March 13, 2016. Mr. Rajaratnam, meanwhile, is expected to be released on July 4, 2021, which no doubt will be a meaningful Independence Day for the former hedge fund billionaire.

Also still in prison are Zvi Goffer, a former Galleon trader, scheduled to be released from the United States Penitentiary in Lewisberg, Pa., on Aug. 15, 2020; Joseph Skowron, who had his own hedge fund, FrontPoint Partners, set to be freed on May 14, 2015, from the Federal Correctional Institution in McKean, Pa.; and John Kinnucan, who ran Broadband Research in Oregon, scheduled for release on October 28, 2015 from Federal Correctional Institution at Terminal Island in San Pedro, Calif.

Most of those serving time in prison were sent to either low-security or minimum-security prisons.

Still waiting to be sent to prison are two former hedge managers, Todd Newman and Anthony Chiasson, and Michael Steinberg, a former long-time employee of SAC Capital. The three men have been allowed to remain free on bail pending the outcome of the appeals of their convictions.

As for Mr. Martoma, he will be housed in a prison located about 30 miles south of downtown Miami that currently holds 1,420 inmates. The prison is currently home to Sanjay Kumar, the former computer software executive, serving a 12-year prison sentence for his part in orchestrating a $2.2 billion fraud at CA Inc., formerly known as Computer Associates. Mr. Kumar is set to be released on Jan. 25, 2017.

Mr. Martoma missed having his sentence at the prison overlap with that of Milton Balkany, a New York rabbi who was convicted in 2010 of trying to extort $4 million from Mr. Cohen and his hedge fund. Mr. Balkany had threatened to go to the government with information he had about insider trading at Mr. Cohen’s hedge fund if the billionaire investor did not pay him the money.

Mr. Balkany, who made his allegations before anyone at SAC was ever charged with insider trading, was being held at the prison in Miami until September 2013, when he was transferred to a halfway house. He was released from federal custody in August.