Ex-SAC Manager Martoma Faces Nov. 4 Insider-Trading Trial
By Patricia Hurtado & Bob Van Voris – Jun 6, 2013 12:01 AM ET
Former SAC Capital Advisors LP portfolio manager Mathew Martoma is scheduled to go on trial Nov. 4 on charges he helped the hedge fund founded by Steven A. Cohen make $276 million using illegal tips about a drug to treat Alzheimer’s disease.
U.S. District Judge Paul Gardephe in Manhattan set the jury trial date yesterday after Martoma’s lawyer, Richard Strassberg, said at a hearing that prosecutors told him they might file a superseding or revised indictment that would include additional information. The government’s deadline to file insider trading charges in the case expires in late July.
Strassberg argued he’d need time to prepare if a new indictment is filed and told Gardephe that he has a trial before U.S. District Judge Jed Rakoff scheduled to begin in late September that could pose a conflict with Martoma’s November trial date. He asked that the trial start in February.
“We do understand that there is a possibility the government will seek to file a superseding indictment by the end of July,” Strassberg said. “That may require additional time to prepare a defense.”
Gardephe said he was reluctant to wait until next year and said he originally intended to set a September trial date in the case before Strassberg took over as Martoma’s defense counsel in April.
“I’m not closing the door to a later trial date, but if you feel, as you get close to your trial date before Judge Rakoff, that you’re facing insurmountable difficulties or that you’ll still be on trial before Judge Rakoff, you’ll alert me to that and I’ll make an appropriate adjournment,” Gardephe said.
Martoma, who worked as a fund manager for Cohen’s CR Intrinsic Investors unit, was charged in November in what the office of Manhattan U.S. Attorney Preet Bharara called the biggest insider-trading scheme in history.
The U.S. says Martoma helped SAC reap the illicit profits by trading in shares of Elan Corp. (ELN) and Wyeth LLC, from tips he received from a physician who was in charge of monitoring tests on a clinical drug trial of bapineuzumab, or bapi, a drug to treat Alzheimer’s disease.
The U.S. Securities and Exchange Commission alleges that Martoma’s source was Sid Gilman, a University of Michigan neurologist who was head of the safety monitoring committee for the drug trial. Gilman has entered into a non-prosecution agreement and is cooperating with prosecutors.
In mid-July 2008, the doctor passed Martoma secret data showing that bapi failed to halt progression of Alzheimer’s in patients in the clinical test, the U.S. said.
When Martoma learned the companies would report negative data on the drug, Martoma had a 20-minute phone call with Cohen, according to the government. The hedge fund owner, at Martoma’s recommendation, sold off almost all of the fund’s $700 million position in Elan and Wyeth, then sold the stock short, prosecutors claimed.
Cohen, who was subpoenaed along with five other senior employees to appear before a federal grand jury in New York, has denied any wrongdoing. Martoma has pleaded not guilty.
When the clinical trial results became public, shares in both companies plunged, allowing the hedge fund to make $276 million in profit and losses avoided, according to the government. Martoma received a $9.3 million bonus as a result, according to the indictment.
Court records show Strassberg is scheduled to go on trial Sept. 23 before Rakoff in a $1 billion lawsuit by the U.S. against Bank of America Corp. over mortgages the bank and its Countrywide unit sold to Fannie Mae and Freddie Mac. Strassberg, who declined to comment after court, is representing Countrywide Financial, according to court records.
Assistant U.S. Attorney Arlo Devlin-Brown said the government was prepared to go to trial and told the judge yesterday that the majority of evidence was provided to Martoma’s defense team before he was indicted in December.
He said the only substantial evidence provided since December were more than 2.5 million pages of e-mails the government obtained from SAC Capital, which he said comprised “all” of the preserved electronic messages Martoma sent and received during his time at hedge fund.
“What is produced after the indictment is basically all the e-mails of this defendant while he worked there for about four years,” said Devlin-Brown, who added the e-mails were in a searchable format. “It is not the kind of thing that would warrant a substantial delay in the proceedings.”
Strassberg also told Gardephe yesterday the defense is contemplating a motion to dismiss charges related to the trading in Dublin-based Elan, citing the 2010 U.S. Supreme Court ruling in Morrison v. National Australia Bank. The high court ruled that U.S. securities laws don’t protect foreign investors who buy stocks on overseas exchanges. He said the government allegesinsider trading of American depositary receipts, or ADRs.
“We would focus particularly on trading of Elan, an Irish company and the ADRs and subsequent count of conspiracy,” Strassberg said. “These are complicated issues that we will be briefing.”
Gardephe yesterday also scheduled a June 18 conference in the case to discuss a dispute over lawyers’ access to an encrypted hard drive of a computer owned by the University of Michiganwhich the government’s cooperating witness used during the time the alleged insider-trading occurred.
Devlin-Brown told Gardephe that the university has told the government that some of the files on the hard drive may be protected by the attorney-client or doctor-patient privilege because they contain information about drug trials that have nothing to do with Martoma’s case as well other confidential medical information. He said that prosecutors had prepared a subpoena to serve upon the university to obtain an encrypted key that would allow lawyers to access the files.
“If the university’s position is that they want to quash a subpoena I want a filing from them,” Gardephe said.
Martoma had asked Gardephe for a bill of particulars, or information, regarding the timing of the alleged inside information and the identities of co-conspirators. The judge said yesterday that prosecutors have already agreed to identify Martoma’s co-conspirators by July.
At least nine former or current employees of Cohen’s $15 billion hedge fund have been linked by the U.S. to insider trading. In March, Michael Steinberg, a fund manager who worked at SAC’s Sigma Capital unit, was indicted by federal prosecutors. His trial is scheduled for Nov. 18.
The U.S. alleges Steinberg, who has pleaded not guilty to the charges, earned more than $1.4 million based on tips provided by his analyst, Jon Horvath. Horvath has pleaded guilty and is cooperating with the U.S.
In April, a federal judge in New York conditionally approved Stamford, Connecticut-based SAC’s record $602 million settlement with the SEC, in which SAC neither admitted nor denied fault.
U.S. District Judge Victor Marrero in Manhattan ruled April 15 that the settlement can go forward, while saying it remains subject to a ruling by the U.S. Court of Appeals in New York in a case involving an earlier SEC settlement with Citigroup Inc. (C)
The case is U.S. v. Martoma, 12-cr-00973, U.S. District Court, Southern District of New York (Manhattan).
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