Stanford ‘MBA’ Gets Nine Years In Jail

Mathew Martoma, who was accepted and who graduated from Stanford University’s Graduate School of Business in 2003, was sentenced to nine years in prison today (Sept. 8) for his involvement in one of the largest insider-trading scams ever. The judge also ordered Martoma to forfeit $9.38 million, a sum equal to his SAC bonus the year of the inside trades.

Martoma, who worked for hedge fund billionaire Steven A. Cohen, sat silently in a New York City federal court as U.S. District Judge Paul Gardephe handed down the sentence. Gardephe said that Martoma’s crime was as brazen as it was lucrative and that there is a “darker side to his character. The evidence I believe showed Mr. Martoma was hoping for one big score,” the judge added. “His plan worked, and now he has to deal with the fallout.”

After the sentencing, the 40-year-old Martoma showed no emotion but walked quickly to his wife, Rosemary, who was surrounded by family members. The couple walked arm in arm out of the courtroom as Ms. Martoma wiped away tears.

A spokesperson for Martoma told The Wall Street Journal that “Mathew Martoma and his family are devastated by the outcome.” Martoma, who is expected to appeal the decision,  is out on bail until November, when he has to report to prison.

The judge rejected arguments by Martoma’s lawyer, Richard Strassberg,  that his client should be sentenced to two or three years. He tried to persuade the judge that Martoma’s “fragile family circumstances” warrant a lower sentence. In redacted court filings, Martoma’s team referred to medical and psychological concerns relating to his wife.

ONE MBA GRADUATE FROM STANFORD TO BE STRIPPED OF A DEGREE

In March, a month after being convicted of  illegal trading of stocks in two pharmaceutical companies that helped SAC book profits and avoid losses worth $275 million, Stanford confirmed that Martoma no longer had his MBA degree because he was admitted under “false pretenses.”

The decision to nullify his degree, however, did not occur because of his Feb. 6th conviction, but rather because he failed to disclose that he was thrown out of Harvard Law School for doctoring his grade transcript and sending the forged document to federal judges in search of a job. The forgery was accidentally disclosed during Martoma’s trial, despite efforts by his lawyers to conceal the details of his expulsion.

That earlier issue came up during the sentencing by Judge Gardephe. “I do believe there is a connection to what happened there and what happened at SAC,” Gardephe said. “The common thread is the unwillingness to accept anything other than the top grade, the best school, the highest bonus and the willingness to do anything to achieve that result.”

STANFORD HAS REMAINED MUM ON THE MARTOMA INCIDENT

Stanford sent Martoma a letter in February seeking an explanation about statements he made on his original MBA application and gave him a two-week deadline for a response. Martoma’s lawyers asked for a two-week extension which was granted by Stanford. When the new deadline ran out without a response, Stanford decided to pull Martoma’s degree.

Though Stanford had consistently declined direct comment on the Martoma case, citing privacy laws, the school does make clear that applicants who are admitted to its MBA program on false pretenses can have their degrees revoked. Most observers assume that Martoma, who legally changed his name from Ajai Mathew Thomas to Mathew Martoma when he applied to Stanford, failed to admit that he was thrown out of Harvard Law School for a disciplinary reason.

All of this has come to light many years later because of Martoma’s New York trial on charges of insider trading. Though his ouster from Harvard was ruled inadmissible by the judge, the disclosure of the unsealed disciplinary report showed that he used computer software to improve some of his first-year law school grades from B’s to A’s. He then sent the forged transcript to nearly two dozen judges when he applied for federal clerkships.

What is all the more intriguing is the extent to which Martoma went to conceal his fraud—all of it revealed in excruciating detail in the court papers which includes the full report by a Harvard Administrative Board that recommended his expulsion from the school. A close reading of the board’s report provides a seldom seen glimpse into a disciplinary procedure at a top law school, but also how the board bent over backwards to be fair to someone who was so unethical.

CHANGING ‘B’ GRADES TO ‘A’ GRADES IN THREE COURSES TO SHOW TO HIS PARENTS ON CHRISTMAS EVE

Martoma, who graduated with a degree in biomedicine, ethics and public policy from Duke University in 1995, had entered Harvard Law School in 1997 and quickly racked up what the law school board would call “an excellent record” in his first year-and-a-half. Besides his solid grades, he was on the Board of Student Advisers, an editor of the Journal of Law and Technology and a semi-finalist in the school’s annual moot court competition. He co-founded the Society of Law and Ethics.

For whatever reason, however, the academic record Thomas had compiled just didn’t seem good enough—for him. At the half-way mark of his JD education, in December of 1998, Thomas altered the transcript of his first-year grades so that he received an A rather than a B in Civil Procedure, an A rather than a B+ in Contracts, and another A in Criminal Law instead of a B. He didn’t change his B+ grade in Torts, nor his A- in Negotiation.

The day before Christmas, Thomas showed the forged transcript to his mother, Lizzie Thomas, a doctor, and his father, Bobby Martoma, who owns residential and commercial properties in Florida. They were ecstatic. Several days later, according to a statement made to the Harvard board, Thomas “realized that what he had done was wrong and showed his parents his real grades.”