SAC Capital Insider Jury Seeks Testimony Favoring Defense

The jury in the trial of former SAC Capital Advisors LP portfolio manager Mathew Martoma ended its second day of deliberations yesterday without a verdict, after asking to review testimony supporting his claim that details of a drug trial weren’t derived from inside information.

Martoma, 39, facing three counts including securities fraud and conspiracy, is accused by U.S. prosecutors of using secret tips about an Alzheimer’s drug clinical trial for trades in Elan Corp. and Wyeth shares that benefited the hedge fund by $275 million. The jury began deliberating around noon Feb. 4 in Manhattan federal court after more than three weeks of hearing evidence.

The jury of seven women and five men, in a case prosecutors have called the most lucrative insider-trading scheme charged against an individual, sent a note to U.S. District Judge Paul Gardephe yesterday seeking a transcript of testimony by Thomas Wisniewski, a defense expert witness who is a professor of neurology, pathology and psychiatry at New York University’s Langone Medical Center.

Wisniewski testified that there was “no substantial difference” between the detailed drug trial results Martoma’s accused of trading on and an earlier press release by Elan and Wyeth publicizing “encouraging top-line results” of the tests.

“It indicates that at least they’re thinking about that,” said Anthony Sabino, a law professor at St. John’s University in New York. “The larger question is what are they thinking? What’s the purpose?”

Legal Standard

Sabino cautioned against reading too much into the jurors’ request. One or more of them may be undecided on the question and considering Martoma’s side, he said. Or the jury may be close to convicting but first wants to be careful the prosecution has proved its case beyond a reasonable doubt -- the legal standard for a conviction, he said.

The jury includes a professor of photography, an insurance underwriter, a president at a footwear and accessories company, a bus driver, and a non-practicing lawyer who works for an accounting firm. Gardephe delayed the start of deliberations by 30 minutes yesterday to permit jurors, who live as far as an hour's drive from the lower Manhattan courthouse to make it through a storm that brought ice, rain and snow.

On Jan. 30, Martoma’s lawyer, Richard Strassberg, led Wisniewski through the June 17, 2008, press release announcing preliminary findings from Phase 2 clinical testing of the Alzheimer’s drug, bapineuzumab. Phase 2 trials are designed to show whether new drugs are safe and effective.

24 Slides

Wisniewski compared the press release with a set of 24 slides summarizing the study’s results, which prosecutors claim Martoma received from Sidney Gilman, the former University of Michigan neurologist who testified for five days as the government’s star witness. Gilman told jurors he gave the slides to Martoma before presenting them at a medical conference in Chicago on July 29, 2008.

The government claims Martoma got confidential information about the tests from Gilman and from New Jersey geriatrician Joel Ross. Both men testified in exchange for immunity from prosecution.

Wisniewski’s testimony was presented to counter the government’s claim that the information Martoma allegedly received from the doctors was both non-public and material -- that a reasonable investor would have considered it significant in making a decision to trade or hold securities.

“In determining whether the information Dr. Ross or Dr. Gilman allegedly disclosed to Mr. Martoma was ‘material,’ you must consider this issue from the perspective of a reasonable investor -– not from the perspective of members of the medical community,” the judge told jurors Feb. 4 before the start of deliberations.

Elan dropped 42 percent after the full bapineuzumab results were made public. Wyeth fell 11 percent. Martoma faces as long as 20 years in prison if convicted of the most serious counts.

In November, Stamford, Connecticut-based SAC Capital, owned by Steven A. Cohen, agreed to plead guilty to securities fraud and end its investment advisory business as part of a record $1.8 billion settlement of the insider-trading probe against it. The agreement must be approved by a judge before it can take effect. Cohen, who denies wrongdoing, hasn’t been charged with a crime.

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

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