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February 05, 2014 11:00 PM

Ex-trader guilty in insider case involving Alzheimer's drug

Associated Press
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    A former SAC Capital Advisors portfolio manager was convicted Thursday of helping his company earn more than a quarter billion-dollars illegally through trades based on secrets about the testing of a potential breakthrough Alzheimer's drug.

    The verdict capped a three-week trial that featured testimony from two prominent doctors who confessed spilling secrets to Mathew Martoma during lucrative consultations with financiers.

    Martoma sat expressionless as the jury forewoman announced he had been found guilty of two counts of securities fraud and conspiracy to commit securities fraud. Tears streamed down the face of his wife, who sat with her hands folded on her yellow dress.

    The trial also contained frequent mentions of SAC Capital's billionaire founder, Steven A. Cohen. Defense lawyer Richard Strassberg said in his closing argument Monday that Cohen was the real target of investigators. He said his client was victimized by the testimony of doctors who traded their credibility for plea deals that left them beholden to the government.

    He said the doctors learned "just how frighteningly scary it can be if you get in the way of a government investigation that's targeting someone like Steve Cohen."

    Sidney Gilman, an 81-year-old former professor of neurology at the University of Michigan Medical School, testified that he gave Martoma the secret results of the drug trial sponsored by drug makers Elan Corp. and Wyeth nearly two weeks before they were publicly announced.

    He said he was charmed by Martoma, 39, who seemed more knowledgeable about his work than hundreds of others in the financial community who paid Gilman more than $1 million over several years for consultations.

    Gilman said he could not recall giving similar information to anyone else, though he conceded that he "perhaps unintentionally ... may have slipped here and there."

    Assistant U.S. Attorney Arlo Devlin-Brown told the jury that after the doctor showed Martoma the test results in one of 43 consultations the pair had, Martoma sent Cohen an early morning email asking: "Is there a good time to catch up with you this morning? It's important." A half hour later, they spoke for 20 minutes on the phone.

    The next day, Devlin-Brown said, Martoma and SAC Capital began selling all their shares in Elan and Wyeth and building a short position that would make millions of dollars when the stock of both companies plummeted following the public announcement of the drug trial's results. The government said the trades on both ends earned $275 million in profits, enough to score a $9.3 million bonus for Martoma.

    "Ladies and gentlemen, Mr. Martoma, though all of this circumstantial evidence, has been caught with his hand deep inside the cookie jar, and defense counsel wants you to think that maybe he was just putting the cookie back," Devlin-Brown said in his closing. The prosecutor said Gilman, formerly one of the top Alzheimer's researchers in the world, has all but ended his career. "He's 81, and he's humiliated."

    Strassberg told jurors Gilman's "story at its heart makes no sense" because his memory was flawed when he met with Martoma in 2008 while he was undergoing chemotherapy for successful cancer treatments.

    Another doctor, Joel Ross, testified that he also gave Martoma secrets about the Alzheimer drug test, in part because he hoped Martoma would connect him with biotechnology companies that might provide business for his new drug research center in Eatontown, N.J.

    SAC Capital pleaded guilty in November to fraud charges and agreed to pay $1.8 billion to settle charges that it allowed, if not encouraged, insider trading for more than a decade.

    Cohen has not been criminally charged, but the Securities and Exchange Commission has accused him in a civil action of failing to prevent insider trading at the company, which he founded in 1992 and bears his initials. Cohen has disputed the allegations.

    The U.S. attorney's office in Manhattan praised Thursday's verdict, comparing Martoma's actions to buying an answer sheet before an exam.

    "As the jury unanimously found, Mathew Martoma cultivated and purchased the confidence of doctors with secret knowledge of an experimental Alzheimer's drug, and used it to engage in illegal insider trading," the prosecutors said in a statement. "In the short run, cheating may have been profitable for Martoma, but in the end, it made him a convicted felon."

    There was no mention at trial of Martoma's educational record at Harvard Law School, where he was expelled in 1999 after he used a forged transcript he claimed he created to impress his parents to apply for a clerkship with as many as 23 federal appeals judges.

    A sentencing date wasn't immediately set. Martoma's attorney declined to comment after the verdict was read.

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