At the end of a somber, two-hour hearing Monday in downtown Manhattan, former SAC Capital portfolio manager Mathew Martoma received a tough sentence for his insider-trading conviction: nine years in prison and the forfeiture of $9.4 million.
That punishment, meted out in federal court by Judge Paul Gardephe, who presided over Martoma's five-week trial in February, came after a heated written exchange between lawyers for both the government and the defendant over the desired length of Martoma's prison term.
Although federal sentencing guidelines supported an incarceration of between 15 and 20 years, government officials had proposed a term of more than eight years—a length of time that lawyers for Martoma described as "outrageous."
Even though the estimated ill-gotten gains in this case amounted to $275 million from combined stock-trading profits and averted losses, Martoma's lawyers argued, his direct benefit from the trading amounted to no more than $9.4 million, the compensation he received the year the trades were made—and perhaps less. The illegal trades were made between 2006 and July 2008 in the pharmaceutical stocks Elan and Wyeth.
The vast majority of the gains were taken by SAC Capital, the hedge fund where Martoma worked at the time.
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Gardephe ultimately was unconvinced by that argument. "I cannot and will not ignore that the amount of the gain was in the hundreds of millions of dollars," he said during the sentencing hearing.
Martoma won't face a monetary fine as part of his sentencing, but he will be required to forfeit the bonus he received during the year in question—a figure that exceeds his current net worth of $7.4 million, according to recent court filings.
While the forfeiture is no doubt difficult to face, the loss of freedom would appear to be the far bigger issue for the Martoma family, whose dependence on the husband and father was detailed in an emotional sentencing memorandum, issued before Monday's hearing.
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"The Martomas are a young and vulnerable family," wrote the defendant's lawyer, Richard Strassberg, in the memo from late May. "Mr. Martoma is the foundation of support for his wife and children and, without him, they stand to crumble."
Martoma was stone-faced Monday during the sentencing, while his wife, Rosemary Martoma, wept quietly.
"Mathew Martoma and his family are devastated by the outcome," wrote Strassberg in a statement Monday evening. Martoma will appeal the conviction, the attorney added.
In his own statement issued shortly after that, U.S. Attorney Preet Bharara, whose office has now won 85 insider-trading convictions and lost only one, was stalwart.
"Today's sentence of a lengthy prison term is well-suited to the audacity of the illegal trading in this case," Bharara wrote. "The long and short of Mathew Martoma's trading is that he traded his liberty, his name and his time with his family for what in the end is nothing."
Martoma has asked that he be able to serve his jail term in a Miami prison camp in order to remain closer to his family, a request that Gardephe has said he will relay to Prison Bureau officials, who will make the final decision.
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—By CNBC's Kate Kelly, Jim Forkin and Dawn Giel