SAC Capital Advisors LP founder Steven Cohen may help former fund manager Mathew Martoma defend against insider-trading charges next month at trial even if Cohen asserts his legal right to avoid testifying.
Martoma, who’s charged with using illegal tips about the results of a clinical drug trial to trade in shares of Wyeth and Elan Corp., is seeking to use Cohen’s May 2012 testimony before the U.S. Securities and Exchange Commission to prove he had nothing to do with SAC’s decision to liquidate its Wyeth holdings and take short positions in both stocks in 2008.
Cohen “intends to assert his constitutional rights” not to risk incriminating himself by testifying, Martoma said in papers filed late yesterday in Manhattan federal court. Martoma argued the trial judge should bar prosecutors from offering evidence about SAC trading decisions not involving him or let him counter with Cohen’s SEC testimony.
Martoma claimed that SAC decided to sell its Wyeth shares based on information from Ridgeback Capital Management LLC founder Wayne Holman and not him. Martoma said Cohen and Phillipp Villhauer, SAC’s senior trader, were the ones who decided how to sell SAC’s Elan and Wyeth holdings and to short the two stocks.
Prosecutors have said the Martoma case is the most lucrative insider trading scheme ever charged against an individual. Martoma, who has pleaded not guilty, faces as long as 20 years in prison on each of two securities-fraud counts and five years for a single conspiracy charge. His illegal trades benefited SAC by $276 million in profit and avoided losses, prosecutors have said.
$1.8 Billion Settlement
Martoma’s trial is set for Jan. 6, two months after SAC agreed to plead guilty to securities fraud and end its investment advisory business as part of a record $1.8 billion settlement of the government’s investigation of insider trading at the firm.
Martoma’s trial follows that of another SAC money manager, Michael Steinberg, who’s currently on trial in Manhattan federal court on charges he traded on insider tips from an SAC technology analyst.
Cohen, who hasn’t been charged, faces an SEC administrative claim accusing him of failing to properly supervise trading at SAC, including by Martoma and Steinberg.
Martoma, according to prosecutors, learned from a doctor involved in the clinical trial of bapineuzumab, an Alzheimer’s Disease drug, that Wyeth and Elan would report negative data results. Martoma had a 20-minute phone call with Cohen, according to the government. The hedge fund owner, at Martoma’s recommendation, sold almost all of the fund’s $700 million position in Elan and Wyeth, then sold the stock short, according to the government.
Citing Cohen’s SEC testimony, Martoma said in yesterday’s filing that his former boss decided to sell the Wyeth shares after Holman, who previously worked at SAC, said he was selling them.
Holman didn’t immediately respond to an e-mail after regular business hours yesterday seeking comment on the filings. Jonathan Gasthalter, a spokesman for SAC at Sard, Verbinnen & Co., didn’t immediately respond to phone and e-mail messages yesterday after regular business hours seeking comment on the filings.
Villhauer also didn’t immediately respond to an e-mail and voice-mail after regular business hours yesterday seeking comment on the filings.
Martoma asked U.S. District Judge Paul Gardephe, who’s overseeing his criminal case, to keep the government from introducing evidence about SAC’s decisions to short Elan and Wyeth and about the manner in which the shares were sold. If not, Martoma said he wants to show he wasn’t involved through the use of Cohen’s testimony.
The court filings came yesterday, the deadline for the parties to ask the judge to rule on evidence before trial. Both sides submitted proposed questions and instructions for jurors.
Prosecutors asked Gardephe to let them introduce evidence of additional confidential information shared by the two doctors they claim passed information to Martoma, Sidney Gilman and Joel Ross. They’re seeking to use it as “relevant, direct evidence of the background and nature of the relationship between Martoma and Gilman, and Martoma and Ross, the two co-conspirators with whom Martoma committed his crimes,” they said in a filing.
“Dr. Gilman is going to testify completely, fully and truthfully pursuant to his agreement,” his lawyer, Marc Mukasey, said yesterday in a phone interview.
Ross, the founder of the Memory Enhancement Center in Eatontown, New Jersey, didn’t immediately respond to a message left with his answering service after business hours yesterday.
In addition to the motions relating to Cohen’s SEC testimony, Martoma asked Gardephe to exclude evidence of the SAC settlement and of prosecutions and plea agreements with other current and former SAC employees.
Martoma also doesn’t want jurors to hear that he was fired from SAC in September 2010 or that he fainted outside his Boca Raton, Florida, home when he was approached by Federal Bureau of Investigation agents in November 2011.
“At most, it is evidence of the stress that people -- innocent and guilty alike -- feel when confronted without warning by law enforcement officials,” Martoma argued.
The case is U.S. v. Martoma, 12-cr-00973, and the Steinberg case is U.S. v. Steinberg, 12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).