Federal prosecutors are recommending that Mathew Martoma, a former trader who worked for the billionaire investor Steven A. Cohen, be sentenced next month to at least eight years in prison for insider trading, if not significantly more.
That would be at the upper end of prison sentences for hedge fund traders convicted of insider trading in recent years, but by no means the stiffest punishment handed down during the long-running investigation.
Prosecutors for Preet Bharara, the United States attorney in Manhattan, did not call for an exact sentence in a court filing on Friday. But prosecutors said the severity of Mr. Martoma’s crime warranted a sentence above the eight years recommended by the federal court’s probation department.
In February, a federal jury in Manhattan convicted the former SAC portfolio manager of helping the hedge fund generate profits and avoid losses totaling $275 million in 2008. Mr. Martoma is one of eight people who once worked at SAC to either be convicted of or plead guilty to insider trading.
Mr. Cohen renamed his firm Point72 Asset Management in April, just days before a federal judge accepted SAC’s guilty plea on insider trading charges. The former hedge manager agreed to pay a $1.2 billion penalty to federal prosecutors and more than $600 million in fines and restitution to securities regulators.
Mr. Martoma, 40, a married father of three young children who worked for Mr. Cohen for just four years, potentially could receive the stiffest sentence yet in the federal government’s multiyear crackdown on insider trading in the $3 trillion hedge fund industry. Based on the charges on which he was convicted, Mr. Martoma could, in theory, be sentenced to as many as 20 years in prison.
To date, the 11 years given to Raj Rajaratnam, the co-founder of the Galleon Group hedge fund, is the longest sentence anyone in the investigation has received. Mr. Rajaratnam was convicted by a jury in May 2011 on 14 counts of insider trading — more than Mr. Martoma’s three criminal charges. But the illicit trading by Mr. Rajartnam generated about $63 million, compared with the $275 million in illegal profits and avoided losses for Mr. Martoma.
Prosecutors said a stiff sentence was needed to reflect the gravity of the illegal trading conducted by Mr. Martoma. In the filing, prosecutors also noted that Mr. Martoma had been expelled from Harvard Law School for altering his law school transcript.
Judge Paul G. Gardephe of the United States District Court in Manhattan is scheduled to impose a sentence on Mr. Martoma on July 28.
In a filing last month by Mr. Martoma, his lawyer asked the judge for leniency, but did not recommend a sentence. The lawyer, Richard Strassberg, said the “probation department is recommending a sentencing guideline” that is “outrageous,” noting that the United States sentencing guidelines called for a minimum of 15 years.
The probation department, in its final report, which is not available to the public, recommended the eight-year sentence referenced in the filing on Friday.
Mr. Martoma’s lawyer argued his client did not deserve a sentence as severe as the one handed down to Mr. Rajaratnam because he was not convicted of multiple counts of insider trading as the Galleon founder was.
The sentencing of Mr. Martoma is one of several unresolved matters in the investigation of Mr. Cohen and his firm. Still outstanding is an administrative failure-to-supervise case against Mr. Cohen filed by the Securities and Exchange Commission last July that has been delayed at the request of prosecutors.
Also, sentences must still be handed out to four former SAC employees who pleaded guilty to insider trading and cooperated with the investigation. One of those cooperators who has yet to be sentenced is Richard Choo-Beng Lee, a former hedge fund manager who worked for Mr. Cohen from 1999 to 2004.
Defense lawyers have said that until all the cooperating witnesses are sentenced, there remains the possibility that prosecutors may still pursue charges against others who worked for Mr. Cohen. But a person briefed on the investigation said that the inquiry was winding down and that a criminal prosecution of Mr. Cohen was unlikely.
A spokesman for Mr. Cohen declined to comment.
For now, Mr. Cohen appears focused on keeping crucial employees from departing. About 850 work at Point72, down from about 1,000 employees a year ago when SAC was managing over $14 billion in assets.
On Friday, the S.E.C. issued an administrative order giving SAC until the end of next year to fully wind down its operations and dispose of about $623 million in hard-to-sell assets that were left after the hedge fund returned up to $5 billion to outside investors.