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Ex-SAC Trader Martoma Seeks Dismissal of Elan Charges

Former SAC Capital Advisors LP portfolio manager Mathew Martoma urged a federal judge to dismiss two insider trading charges tied to his firm’s sales of Dublin-based Elan Corp.’s American depositary receipts.

Martoma, who’s charged with the biggest insider trading scheme in U.S. history, cited a U.S. Supreme Court ruling in 2010, called Morrison v. National Australia Bank, that said U.S. laws don’t protect foreign investors who buy stocks on overseas exchanges.

He was charged by the U.S. in November, accused of helping the hedge fund founded by Steven A. Cohen make $276 million using illegal tips about a drug to treat Alzheimer’s disease. The U.S. alleged that after getting a tip from a neurologist who was head of the safety monitoring committee for the drug trial, Martoma traded on Elan ADRs and shares of Wyeth LLC. Martoma has denied wrongdoing and is scheduled to go on trial in November.

“Mr. Martoma respectfully requests that this court dismiss all charges related to transactions in the securities of Elan Corp., Plc, an Irish corporation with stock publicly traded on the Irish and London stock exchanges,” Martoma’s lawyer, Richard Strassberg, said in court papers. U.S. securities law “does not reach Mr. Martoma’s purchases and sales of Elan ADRs should be dismissed.”

The U.S. Securities and Exchange Commission alleges Martoma’s source was Sid Gilman, a University of Michigan neurologist who was has entered into a non-prosecution agreement and is cooperating with the U.S.

Clinical Test

In mid-July 2008, the doctor passed Martoma secret data showing that drug, known as 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.

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, who worked for SAC’s CR Intrinsic unit received a $9.3 million bonus as a result, according to the indictment.

SAC Capital, based in Stamford, Connecticut, agreed in March to pay almost $602 million to settle SEC claims tied to the Martoma trades without admitting or denying wrongdoing.

Martoma’s lawyer said that while he isn’t seeking dismissal of a charge tied to trading in Wyeth LLC, a Delaware corporation based in Madison, New Jersey, he reserves the right to do so later.

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

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