SAC’s Martoma Faces Doctor U.S. Says Tipped Him on Tests

Photographer: Peter Foley/Bloomberg

Former SAC Capital Advisors LP fund manager Mathew Martoma. Close

Former SAC Capital Advisors LP fund manager Mathew Martoma.

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Photographer: Peter Foley/Bloomberg

Former SAC Capital Advisors LP fund manager Mathew Martoma.

The U.S. government’s key witness against Mathew Martoma testified that the former SAC Capital Advisors LP fund manager worked hard to impress and befriend him, before pressing for more and more secrets about the clinical drug trial he was working on.

Sidney Gilman, 81, a former University of Michigan neurologist, testified that Martoma asked him in 2006 for confidential information about adverse reactions that showed up in the testing of bapineuzumab, a drug intended to treat Alzheimer’s disease, until he finally gave it to him.

“On that occasion I slipped and I told him the side effect,” Gilman told jurors in Martoma’s insider-trading trial in Manhattan federal court.

After that, Gilman gave Martoma detailed secret information that came to him as the chairman of the clinical trial’s safety monitoring committee, including data that was kept from Wyeth and Elan Corp., the companies that were developing the drug. The so-called Phase 2 tests were designed to determine whether bapineuzumab was safe and effective for patients with mild and moderate Alzheimer’s disease.

“That came about slowly, based on our relationship,” Gilman told jurors yesterday at the end of the first full week of the trial. “That was based primarily on our relationship.”

Prosecutors claim Martoma, 39, used confidential data about the tests from Gilman and a second doctor, New Jersey geriatrician Joel Ross, to benefit SAC by $276 million in trades of Wyeth and Elan. Martoma, who denies wrongdoing, faces as long as 20 years in prison if convicted of securities fraud.

Trading Probe

Martoma is one of 83 people who have faced charges in a six-year probe by prosecutors in the office of Manhattan U.S. Attorney Preet Bharara of hedge fund managers, company insiders and expert networking firms. So far, 78 of the people charged in the probe have been convicted and none have been acquitted at trial. Six of the eight who worked at SAC have pleaded guilty and one, SAC portfolio manager Michael Steinberg, was convicted of conspiracy and securities fraud by a Manhattan federal jury last month.

In November, SAC agreed to plead guilty to securities fraud and end its investment advisory business as part of a record $1.8 billion settlement of a U.S. investigation of insider trading at the Stamford, Connecticut-based firm. The accord must be approved by a judge.

SAC founder and owner Steven A. Cohen hasn’t been charged with wrongdoing.

Paid Consultations

Ross, who testified over two days at Martoma’s trial, told jurors he conducted paid consultations with Martoma, giving him secret information about the number of subjects enrolled in the trial and an adverse reaction one patient had to the drug.

Ross testified he discussed the final test results with Martoma on July 28, 2008, the day before the bapineumuzab results were to be announced publicly at a meeting of Alzheimer’s disease specialists in Chicago. Prosecutors claim Martoma already had detailed information about the results from Gilman. Ross testified he was “flabbergasted” by the amount of detail Martoma appeared to have.

Both doctors were given immunity from prosecution in return for testifying against Martoma. Gilman told jurors yesterday he agreed to forfeit the $186,000, plus interest, that he was paid by Elan for his role in the testing and by Gerson Lehrman Group Inc., which arranged the meetings with Martoma.

Share Drop

Prosecutors claim SAC sold a $700 million position in Elan and Wyeth in a few days before the disappointing bapineuzumab results caused shares of the companies to drop.

Gilman took the stand this morning, testifying that he passed illegal tips to the former fund manager.

“I revealed information that was confidential about a clinical drug trial to Mathew Martoma inappropriately,” he said.

Asked by Assistant U.S. Attorney Arlo Devlin-Brown to identify Martoma, Gilman reached for his glasses as the defendant sat with his head down. Gilman identified Martoma when he looked up at him.

Gilman, who told jurors he had planned to teach for at least five more years, said he retired in 2012 as a result of the charges against Martoma.

Gilman Retired

“I retired in November 2012 rather than being fired,” he said.

Gilman, who said he uses hearing aids, occasionally failed to hear parts of the questions he was asked. He said he hadn’t seen Martoma since the day after the public announcement of the bapineuzumab results.

Devlin-Brown showed Gilman the confidentiality provisions he had agreed to, in the guidelines for the safety monitoring committee and his contracts with Elan and Wyeth.

“My understanding was that I was not permitted to disclose any part of the safety monitoring committee,” Gilman said.

Gilman testified that Martoma flattered him and said he wanted to be friends, telling the older man about his wife and children, his parents and his family’s emigration from India.

“He was very nice, very cordial, very interested,” Gilman said of Martoma. “He seemed to understand the science quiet well.”

Gilman was favorably impressed the first time he met Martoma, at SAC’s New York offices, because Martoma had arranged for sandwiches. He testified that on a trip to Istanbul, he had forgotten he’d scheduled a phone appointment with Martoma. The fund manager told him he’d spent almost an hour on the phone trying to track him down, concerned for his welfare in a foreign country.

‘Really Touching’

“I thought that was really touching that he was worried about me, trying to find me, when I really had just forgotten about the consultation,” Gilman said.

Gilman said that from 2001 to 2012 he did hundreds of consultations, mostly with people from hedge funds, which were arranged by Gerson Lehrman. He said he enjoyed the consultations, for which he was paid $1,000 an hour.

“It paid well. It was a diversion,” Gilman said.

In 2008, Gilman said, he made $310,000 from his job at the University of Michigan and close to $200,000 from his Gerson Lehrman consultations.

The case is U.S. v. Martoma, 12-cr-00973, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Bob Van Voris in federal court in Manhattan at rvanvoris@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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