SAC's Martoma Wins Some Relief Ahead of Trial

, The Litigation Daily

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Richard Strassberg of Goodwin Procter has his work cut out for him in the upcoming insider trading trial of Mathew Martoma, a former portfolio manager at Steven Cohen's beleaguered hedge fund SAC Capital Advisors. But on Monday Strassberg managed to keep at least a few bits of unfavorable evidence about his client from ever reaching the jury.

U.S. District Judge Paul Gardephe in Manhattan issued a series of evidentiary rulings favorable to the defense on Monday, one day before the trial is set to begin. The rulings could complicate the government's task of proving that Martoma traded stocks in the drug companies Elan Corp. and Wyeth Pharmaceuticals based on insider information about clinical trials of the drug bapineuzumab.

Perhaps most significantly, Gardephe wrote in a 11-page order that the government can't tell jurors about certain conversations Martoma had with doctors about drugs other than bapineuzumab. The government has never alleged that insider information was swapped during these conversations. But prosecutors nonetheless sought to introduce the exchanges as evidence, arguing that they shed light on how Martoma was able to learn inside info about bapineuzumab. Gardephe denied the request, finding it would unfairly prejudice Martoma's defense and that, in any event, the excluded evidence doesn't help "explain how a relationship of trust between the Defendant and the doctors developed."

The government also won't be able to introduce evidence that SAC fired Martoma for poor performance in 2010, two years after the alleged conduct at issue in the case. Prosecutors argued that SAC's termination shows that Martoma engaged in insider trading to keep his job. But Gardephe poked holes in that reasoning. In a separate 10-page decision, he wrote that "the fact that Martoma lost his job in September 2010 does not demonstrate that he was worried about losing his job in 2008."

In yet another ruling favoring Martoma, Gardephe also blocked prosecutors from introducing evidence that the former SAC manager fainted when he was arrested. The government argued that the fainting demonstrates consciousness of guilt. Gardephe disagreed, writing that "it is not unusual for any citizen—whether guilty or innocent—to feel some level of stress or nervousness when approached by a law enforcement officers."

Martoma is hoping to avoid the fate of another SAC employee, Michael Steinberg, who faces the possibility of jail time after losing an insider trading trial in December. Barry Berke of Kramer Levin Naftalis & Frankel represented Steinberg.

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