An Accused Insider Trader's Spectacular Lies

, The Am Law Daily

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Steven Harper

Question: “What happens after you’re kicked out of Harvard Law School for creating a phony transcript that inflates your grades?”

Answer: “You get an MBA from Stanford … and you get rich.”

Tragically, a real person, Mathew Martoma, lies at the center of that joke. Martoma is on trial for his role in what prosecutors have called “the most lucrative insider trading scheme ever charged.”

When Ethics Is Just a Word

According to Bloomberg News, Martoma entered Harvard Law School in 1997 as Ajai Mathew Mariamdani Thomas. Born in Michigan and raised in Florida, he had graduated from Duke University in 1995 with a degree in biomedicine, ethics and public policy. Yes, ethics.

For the two years after graduating from college he worked at the National Human Genome’s Office of Genome Ethics in Bethseda, where he wrote three papers on the topic of medical ethics. Then he enrolled at Harvard Law, where his accomplishments included being a semifinalist in the school’s annual moot court competition, serving as editor of the Journal of Law and Technology, and cofounding the school's Society of Law and Ethics. Yes, ethics, ethics and more ethics.

A Bad Turn

Although Thomas received “excellent grades” while attending Harvard, they were apparently not sufficiently excellent for him to show to his parents (or so he later told a Harvard disciplinary panel, according to court filings in the insider trading case). So he created a phony transcript: his Civil Procedure grade jumped from a B to an A; his Contracts grade rose from B+ to A; and his Criminal Law grade went from B to A. He didn’t change his grades in Torts (B+), Negotiation (A-) or Property (A).

In addition to impressing his parents, the fake transcript became a key element in Thomas’ applications for a federal appellate court clerkship. A clerk for one of the judges to whom he applied thought something about the transcript seemed amiss and contacted Harvard’s registrar, who in turn confronted Thomas. According to the disciplinary panel’s subsequent report, Thomas told the registrar, “It was all a joke.”

Later, though, when he appeared before the Harvard panel, he dropped the “joke” defense. Instead, the panel noted that “Mr. Thomas was apparently under extreme parental pressure to excel academically.”

Ultimately, the panel recommended his dismissal from the school—a decision Thomas appealed. According to the government’s motion in limine to use the Harvard evidence in the insider trading trial, he then fabricated a forensic report in support of his administrative appeal. The Harvard Law School faculty voted to expel him on September 17, 1999.

A Fresh Start?

By 2001, Ajai Thomas had changed his name to Mathew Martoma and was on his way to Stanford Business School. In 2003, he received an MBA from Stanford and went to work for a Boston hedge fund. In 2006, he joined SAC Capital.

According to The New York Times, Martoma received a $9.4 million bonus in January 2009 as a reward for his performance the prior year in SAC’s health care group. During 2008, he had made trades in Wyeth and Elan stock that netted his employer a lot of money, but also led to his current legal difficulties. Bloomberg reports that SAC fired Martoma in September 2010 because, as one SAC executive allegedly put it, he was a “one-trick pony” whose trades in 2009 and 2010 lost money. A federal jury will decide his fate.

For Your Consideration

Setting aside the question of whether Martoma is guilty of insider trading, his biography provides an opportunity to contemplate issues that transcend his personal circumstances. For example, when should adult children stop blaming parents for their own misbehavior? Relying on that excuse blocks introspection that can lead to personal improvement.

Likewise, did Martoma’s application to Stanford acknowledge his expulsion from Harvard? If so, how could Stanford have admitted him? If not, will Stanford rescind his MBA? The answers could have implications for the integrity of a world-class educational institution.

Finally, what insight into institutional behavior does Martoma’s experience provide? Harvard Law School gave him due process in a lengthy administrative hearing, deliberated carefully and expelled him. The need to preserve the institution’s long-term values guided its conduct.

In contrast, SAC Capital apparently focused on short-time horizons. A good year got Martoma big bucks; a bad year thereafter got him fired.

When it comes to their temporal mindsets, most big law firms today look more like SAC Capital than Harvard Law School. Following the business world’s approach—maximizing short-term results—has produced stunning equity partner profits. But, sometimes, current profits come at the expense of long-term values—collegiality, loyalty, mentoring, institutional stability, even client value—that don’t lend themselves to a simple metric,

So the next time someone says the law is just another business, ask yourself if that’s a good thing. Consider whether some aspects of the law as a profession are worth preserving. And think about the unfortunate journey of Mathew Martoma.

Steven J. Harper is an adjunct professor at Northwestern University and author of "The Lawyer Bubble: A Profession in Crisis" (Basic Books, April 2013), and other books. He retired as a partner at Kirkland & Ellis in 2008, after 30 years in private practice. His blog about the legal profession, The Belly of the Beast, can be found at http://thebellyofthebeast.wordpress.com/. A version of the column above was first published on The Belly of the Beast.

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