Former SAC Capital Advisors LP fund manager Mathew Martoma, on trial for insider trading, lost a bid to show jurors what founder Steven Cohen told regulators about the sale of Wyeth stock at the center of the case -- statements he argues exonerate him.
Martoma sought to use excerpts from Cohen’s May 2012 deposition before the U.S. Securities and Exchange Commission to prove that he wasn’t involved with SAC Capital’s decision to liquidate its Wyeth holdings and take short positions in the drugmaker and Elan Corp. in 2008.
The government alleged that the moves on the two stocks were made based on illegal inside information, resulting in a $276 million benefit to the firm and the most lucrative insider-trading scheme ever charged against an individual.
U.S. District Judge Paul Gardephe on Jan. 7 gave written questionnaires to 80 potential jurors. He excused 26 after prosecutors and lawyers for Martoma agreed they weren’t able to serve on the jury. The judge questioned the remaining men and women yesterday and will continue today. The parties will give opening statements after a jury is chosen, as soon as today.
Martoma claimed SAC Capital sold its Wyeth shares based on information from Ridgeback Capital Management LLC founder Wayne Holman and not him. He said that Cohen and Phillipp Villhauer, SAC Capital’s senior trader, were the ones who decided how to sell its Elan and Wyeth holdings and to short the two stocks.
Gardephe said in a ruling yesterday that the testimony isn’t admissible at a criminal trial and that Cohen’s deposition before the SEC doesn’t exonerate Martoma.
“Even if Cohen had testified that Martoma played no role in SAC’s decision to sell its Wyeth and Elan stock and to sell short these securities -- an assertion that is not supported by a review of Cohen’s deposition transcript -- this court would of course not be required to accept Cohen’s account,” Gardephe said.
The judge said Martoma’s assertions that Cohen’s testimony clears him of criminal wrongdoing “are not accurate.” A review of Cohen’s account actually incriminates Martoma, the judge said.
“According to Cohen, Martoma played a significant role in his decision to buy Elan and Wyeth stock, and it was Martoma’s discomfort with the Elan position on July 20, 2008 that was the impetus for selling the position,” Gardephe said.
“While the defendant asserts Cohen testified that Martoma had ‘nothing to do with’ Cohen’s decision to sell the Wyeth position, Cohen actually said no such thing,” the judge said. Instead he testified that he didn’t recall whether the two men discussed Elan and Wyeth, the judge said.
Martoma used illegal tips about the results of a clinical drug trial to trade Wyeth and Elan shares, according to prosecutors. He learned from a doctor involved in the clinical trial of bapineuzumab, an Alzheimer’s disease drug, that both companies would report negative data results, prosecutors said.
The fund manager had a 20-minute phone call with Cohen. The hedge-fund owner, at Martoma’s recommendation, sold almost all of the fund’s $700 million position in both companies and sold the stocks short, according to the government.
Martoma, who has pleaded not guilty, faces as many as as 20 years in prison on each of two securities-fraud counts and five years for a single conspiracy charge.
Citing Cohen’s SEC testimony, Martoma had argued that his former boss decided to sell the Wyeth shares after Holman, who previously worked at SAC Capital, said he was selling them.
The case is U.S. v. Martoma, 12-cr-00973, U.S. District Court, Southern District of New York (Manhattan).