June 10, 2013 6:09 pm

SAC Capital case nears breakthrough on laptop access

US prosecutors are finalising an agreement with the University of Michigan that would give them access to computer files tied to an insider trading case against a former SAC Capital employee.

The battle over the files of Dr Sidney Gilman, a former professor of neurology at the medical school, has become pivotal in the government’s investigation of a former SAC Capital employee, Mathew Martoma, who is accused of participating in the biggest insider trading scheme on record.

The university has refused to provide prosecutors and lawyers for Mr Martoma with an encryption key to decode the files on the laptop of Dr Gilman, who allegedly gave confidential drug trial information to Mr Martoma.

Peter Barkey, a spokesman for the University of Michigan Health System, said: “We are in the process of finalising agreement with the US attorney’s office.” He initially said he expected it to be completed by Wednesday but later said by Wednesday June 17.

Mr Barkey said the university would not turn over the encryption key because of its responsibility to protect patient confidentiality, but it was nearing an agreement with the government and Mr Martoma’s lawyer to run keyword searches. The negotiation was focused on sorting out the exact search terms, he said.

“We will co-operate fully,” he said. The agreement, if finalised, is likely to allow the university to avoid a court hearing scheduled for next week to work out access to the laptop hard drive.

At a court hearing last week Arlo Devlin Brown, a prosecutor, said the Federal Bureau of Investigation could see file names but could not access the content of the files without an encryption key. The US attorney’s office declined to comment. Mr Martoma’s lawyer could not be reached.

Dr Gilman sat on an advisory committee overseeing a clinical trial of an Alzheimer drug jointly developed by Elan and Wyeth. After meeting Mr Martoma through an expert network company, Dr Gilman allegedly began providing Mr Martoma with updates on the confidential drug trial.

According to court filings, Dr Gilman gave Mr Martoma the password for a confidential draft presentation explaining the results of the drug trial before it was publicly announced. Three days later Steven Cohen, founder of SAC, began dumping the fund’s entire position in Elan and Wyeth. SAC made more than $276m in profits and avoided losses from the trades once the trial results were made public.

Dr Gilman is co-operating with authorities. Mr Martoma has pleaded not guilty. SAC paid $602m to settle civil inside trading charges with the Securities and Exchange Commission, without admitting or denying wrongdoing. Mr Cohen has not been charged with any wrongdoing.

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