Mathew Martoma’s former SAC Capital Advisors LP trader testified he came to work on July 29, 2008, thinking he and his boss might lose their jobs.
“I believed that we had incurred significant losses in our portfolio,” the former trader, Timothy Jandovitz, said yesterday in Martoma’s insider-trading trial. Jandovitz, the first witness called by prosecutors, told jurors he believed that bad news about a clinical drug trial had caused losses in the fund managed by Martoma “north of $100 million.”
“I was concerned about the security of my boss’s job and my job as well,” Jandovitz said. “Normally Steve Cohen doesn’t like it when you lose him money,” he said, referring to SAC’s founder and owner.
What Jandovitz didn’t know was that SAC had quietly liquidated a $700 million position in shares of Wyeth and Elan Corp. the week before the announcement, according to prosecutors. SAC gained $276 million from trades based on the illegal tips about tests of the Alzheimer’s disease treatment, said prosecutors, who have called it the most lucrative insider-trading scheme in history.
Jandovitz said Martoma later told him that Cohen had directed Martoma not to tell him about the decision to sell the stock.
“Were you offended by that?” Assistant U.S. Attorney Arlo Devlin-Brown asked Jandovitz.
“Slightly, yes,” he answered.
Prosecutors claim Martoma used inside information from two doctors supervising the drug trial to allow SAC to sell its position before the bad news was announced publicly. If convicted of securities fraud, he faces as long as 20 years in prison.
In November, SAC Capital 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. Cohen hasn’t been charged.
At the start of his testimony, Jandovitz was asked by Devlin-Brown to identify Martoma.
“Mat is wearing a dark suit, white shirt and a tie,” Jandovitz said, to laughter as spectators realized he’d described almost every male lawyer in the room.
Jandovitz’s testimony came after lawyers for both sides gave their opening statements.
Devlin-Brown told jurors that Martoma “corrupted” a doctor overseeing the trial in order to get inside information and trade on the illegal tips.
Martoma “sought out an illegal edge,” Devlin-Brown said. “Ultimately, this case is not about scientific testing and it’s not about trading. The case is about cheating.”
Richard Strassberg, an attorney for Martoma, told jurors his client is “an innocent man. Mathew Martoma did not commit these charges.”
“There were many, many independent reasons to sell Elan and Wyeth stock in July 2008,” Strassberg said about SAC Capital’s decision to liquidate its holdings in the two stocks. “Inside information was not one of them.”
On Jan. 9, U.S. District Judge Paul Gardephe unsealed documents showing Martoma was expelled from Harvard Law School in 1999 for creating a fake transcript that inflated his grades at a time when he was applying for a prestigious federal appeals court clerkship.
As part of his defense against the Harvard charges, Martoma hired a lawyer, took two polygraph tests and submitted a forensic computer report from a company he’d formed with a partner who was facing federal charges in a $12.6 million fraud, according to court records.
Strassberg yesterday told jurors that Martoma is “the quintessential American success story” and described his client’s background with no mention of Harvard.
The 12 jurors and four alternates selected Jan. 9 were well-dressed and listened attentively to the opening statements. One of the jurors, a New York University professor with a bad back, sat out of place at the end of the jury box, with the judge’s permission, observing the trial with an unlit cigar in his mouth and his left leg propped on an overturned wastepaper basket.
The case is U.S. v. Martoma, 12-cr-00973, U.S. District Court, Southern District of New York (Manhattan).