By Nate Raymond
NEW YORK (Reuters) - Prosecutors "rushed to judgment" in charging former SAC Capital Advisors portfolio manager Mathew Martoma with insider trading, his lawyer told jurors on Friday.
Richard Strassberg, Martoma's attorney, argued there were "many, many independent reasons" for the hedge fund to have made the trades at the heart of the case.
"The story just doesn't add up because in the haste to make a case, the prosecution rushed to judgment," Strassberg said.
Arlo Devlin-Brown, an assistant U.S. attorney, acknowledged that Martoma did research before trading in the stocks and making investment recommendations to Steven A. Cohen, the founder of SAC Capital.
"But the evidence is going to show Mathew Martoma also sought out an illegal edge," Devlin-Brown said.
Martoma had "corrupted" two doctors involved in a clinical trial being conducted by Elan Corp and Wyeth of an Alzheimer's drug in order to gain inside information, the prosecutor said.
Strassberg and Devlin-Brown were making opening statements on Friday in the criminal trial of Martoma, 39, before a standing-room-only crowd in federal court in New York. Prosecutors say Martoma engaged in the most lucrative insider trading scheme in U.S. history, helping SAC make profits and avoid losses of $276 million.
The case is one of a series of prosecutions by U.S. authorities since 2009 with the aim of cracking down on insider trading by hedge funds.
Much of the government's attention has centered on Cohen's SAC Capital, a once $14 billion hedge fund that has agreed to pay $1.8 billion in criminal and civil settlements and plead guilty to fraud charges stemming from insider trading by its employees.
Martoma is one of eight current or former SAC employees to be charged with insider trading. A resident of Boca Raton, Florida, Martoma worked at the hedge fund's CR Intrinsic Investors division before being charged with three conspiracy and securities fraud counts.
An indictment against Martoma accuses him of arranging trades in Elan and Wyeth based on confidential information he got from two doctors, Sidney Gilman and Joel Ross, who took part in a clinical trial for an Alzheimer's drug. Wyeth is now a unit of Pfizer Inc.
FOCUS ON DOCTORS' CREDIBILITY
During the opening statements Friday, Strassberg urged jurors to question the credibility of the doctors, who he said received "sweetheart" deals promising they would not be prosecuted if they cooperated with the investigation.
He focused in particular on Gilman, a former neurology professor at the University of Michigan, saying he first told government investigators he had not provided Martoma with confidential information.
"Dr. Gilman felt pressure to tell a story the prosecutors wanted to hear," Strassberg said.
He also questioned the memory of Gilman, 81, who at the time was undergoing chemotherapy and taking a drug whose side effects include confusion.
Devlin-Brown, the prosecutor, acknowledged there was "no question these doctors broke the law and disgraced themselves and their professions."
He called them "valuable witnesses" who had agreed to testify about their "corrupt" relationships with Martoma.
Martoma came to connect with the doctors through so-called expert-networking firms, which connect sophisticated investors with industry experts, Devlin-Brown said.
Ross, a New Jersey doctor who was a clinical investigator on the Alzheimer's drug trial, earned $1,500 per hour to consult with Martoma, he said.
Ross oversaw a couple of dozen patients participating in the trial and "started telling Mathew Martoma virtually everything he knew about the drug trial," Devlin-Brown said.
Gilman earned $70,000 through more than 40 paid consultations with Martoma, Devlin-Brown said. The doctor also began considering Martoma a friend, in what Devlin-Brown said could be seen as an "odd coupling."
Gilman too began telling Martoma about "virtually everything he was learning," about the drug, bapineuzumab, Devlin-Brown said, including ultimately on July 17, 2008, about the final trial results, which he was scheduled to present at a conference in Chicago on July 29.
Martoma flew out to meet Gilman in Michigan on Saturday, July 19, where he reviewed a presentation about the trial, Devlin-Brown said.
"The evidence will show that he knew these results would not be good," he said.
After the meeting, SAC sold off its $700 million position in Elan and Wyeth, and placed bets against the companies.
For his part, Strassberg said SAC had always planned to sell off its stake. He said by the time the sale took place, Elan's stock had become "overheated" and the global financial crisis was building.
"You're going to see the evidence doesn't match the story," he said.
The case is U.S. v. Martoma, U.S. District Court, Southern District of New York, 12-cr-00973.
(Reporting by Nate Raymond; Editing by Eddie Evans and Andrew Hay)