Ex-SAC Manager Martoma’s Defense Rests in Insider Trial

Former SAC Capital Advisors LP fund manager Mathew Martoma’s defense ended yesterday after his lawyers sought to convince jurors that the inside information he’s accused of trading on wasn’t actually secret.

Martoma, 39, is on trial in Manhattan federal court accused of using illegal tips from two doctors who were supervising parts of a clinical drug trial. Prosecutors claim Martoma learned detailed testing results for bapineuzumab, an Alzheimer’s disease drug under development by Elan Corp. and Wyeth, and made $275 million for the firm in illegal profits and losses avoided. The trial is in its fourth week.

Jurors will begin considering the case next week after closing arguments from both sides. Martoma, charged with conspiracy and two counts of securities fraud, faces as long as 20 years in prison if convicted of the securities-fraud charges.

Lawyers spent most of yesterday questioning Dr. Thomas Wisniewski, a professor of neurology, pathology and psychiatry at New York University’s Langone Medical Center. Richard Strassberg, a lawyer for Martoma, asked Wisniewski to compare draft slides presenting the final results of the drug trial with an earlier press release issued by the two drug companies.

“There was no substantial difference between the two,” Wisniewski told jurors.

No Cooperation

Martoma is being tried after rejecting U.S. investigators’ attempts to get him to cooperate in their probe of insider trading at SAC Capital. The government claims Martoma had a 20-minute phone call with Steven Cohen, the Stamford, Connecticut-based hedge fund’s founder, after learning the results of clinical tests would be disappointing to investors.

SAC Capital sold its $700 million position in Elan and Wyeth within days of the phone call, according to prosecutors.

Cohen was sued by the U.S. Securities and Exchange Commission in an administrative proceeding that alleged he failed to properly supervise trading at his Stamford, Connecticut-based hedge fund. He denies wrongdoing and hasn’t been charged with any crimes.

To convict Martoma of insider trading, the government must convince jurors he traded on material information that wasn’t available to the public. In questioning prosecution witnesses, including Sidney Gilman, the former University of Michigan neurologist who was the government’s star witness, Martoma’s team has tried to show that the information he got was already known to investors.

Press Release

Strassberg yesterday led Wisniewski through the June 17, 2008, press release by Elan and Wyeth announcing preliminary findings from a Phase 2 clinical trial of bapineuzumab. Phase 2 tests are designed to show whether new drugs are safe and effective.

Wisniewski compared the press release with a set of 24 slides summarizing the study’s results, which prosecutors claim Martoma received from Gilman. Gilman gave the slides to Martoma before he presented them at a medical conference in Chicago on July 29, 2008, the government said.

Wisniewski told jurors the data from the slides wasn’t significantly different from what was reflected in the press release.

After both sides finished presenting evidence yesterday, U.S. District Judge Paul Gardephe sent the 12 jurors and three alternates home until Feb. 3, when prosecutors and lawyers for Martoma are scheduled to make their closing arguments.

Decision Confirmed

After scheduling closing arguments and sending the jury home, Gardephe called the lawyers and Martoma to the bench to confirm the defendant’s decision not to testify in his own behalf, according to a transcript.

In December, Martoma’s lawyers fought to keep jurors from learning “toxic character evidence” about their client, including that he was thrown out of Harvard Law School in 1999 for creating a phony transcript. Martoma later teamed up with a man under indictment for fraud to produce a forensic computer report, signed by three untrained temporary workers, for his appeal of the expulsion.

If Martoma had taken the stand in his trial, prosecutors said, they planned to question him about those actions, to try to convince jurors he isn’t a truthful witness.

Gardephe said that if Martoma had second thoughts about taking the stand, he would reopen the trial for jurors to hear his testimony.

“So understanding that, it is your wish not to testify in this case?” Gardephe asked Martoma.

“It is my wish,” Martoma said.

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

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