Mathew Martoma “corrupted” medical doctors to gain an early look at confidential drug trial results that enabled hedge fund SAC Capital to make more than $276m in profits, prosecutors said as the trial over the largest insider trading case in history began on Friday.
Mr Martoma, a former portfolio manager for SAC, “sought out an illegal edge”, prosecutor Arlo Devlin Brown told the jury, when he contacted two medical doctors hired to participate in a clinical trial for an experimental drug to treat Alzheimer’s disease.
Prosecutors allege Sidney Gilman, the chairman of the safety committee for the joint trial by drug companies Elan and Wyeth, was “flattered” by Mr Martoma and gave him the confidential results before they were publicly announced. SAC allegedly traded on the information, making more than $276m in profits and avoided losses.
Mr Gilman, now 81, is the government’s star witness. He was granted an immunity deal in exchange for his testimony.
Richard Strassberg, Mr Martoma’s attorney, said prosecutors “have it all wrong”.
He said there was nothing “sinister” about getting an “edge”. He attacked Mr Gilman’s credibility, telling the jury his story had changed several times from when he was first approached by prosecutors.
The doctor’s “faulty memory” and that he “changed his story again and again will give you ample reasonable doubt” to decide to acquit Mr Martoma, Mr Strassberg said.
Mr Gilman was consulting with 230 analysts and was undergoing treatment for cancer at the time of the alleged tip, including taking a medication that causes confusion, Mr Strassberg said.
He also highlighted the lack of emails and wire taps linking the stock sales to Mr Gilman’s information. “The prosecution’s case does not add up,” Mr Strassberg added.
Mr Martoma, who has pleaded not guilty, was supported by family members in court. In the front row sat his wife Rosemary, who was joined by her mother and Mr Martoma’s parents.
Timothy Jandovitz, who was Mr Martoma’s trader at SAC and the government’s first witness, said he remembered when the drug trial results were publicly announced. Recalling that the internal computer system of trade position indicated the large stake SAC held in both drug companies, “I believed that we had incurred significant losses …north of $100m,” Mr Jandovitz testified.
He said he was concerned about losing his job. “Normally Steve Cohen [SAC’s founder] doesn’t like it when you lose money,” he said.
Mr Jandovitz said he was surprised to learn the position had been sold. He told the court that Mr Martoma had told him “Steve Cohen had directed [him] to not inform me of our decision to sell the stock.”
The trial continues.
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