A trial starting this week over what prosecutors call the most lucrative insider trading scheme ever will likely delve into the trading activity of Steven A Cohen, the founder of the SAC Capital Advisors hedge fund.
Mathew Martoma, 39, is charged with using confidential information provided by two doctors involved in a clinical trial in 2008 to trade in drug companies Elan Corp and Wyeth, now owned by Pfizer.
The trial is part of a crackdown on insider trading by federal prosecutors in New York. Since October 2009, 78 people have been convicted, either through plea deals or in an unbroken trial winning streak for prosecutors.
Much of the investigation has centred on improper trading activities at SAC Capital, where eight current or former employees, including Martoma, have been criminally charged.
In papers filed in court ahead of Martoma's trial, prosecutors charge that in 2008 SAC began selling off a $700-million position in Elan and Wyeth — mostly held in Cohen's own accounts — and placed bets against the companies after Martoma received tips from the doctors.
The hedge fund made profits and avoided losses amounting to $275 million, the prosecutors said.
Cohen has denied wrongdoing and has not been charged criminally.
Martoma, who was arrested at his home in Boca Raton, Florida, in November 2012, has pleaded not guilty and not cooperated with prosecutors.
“Martoma continues to fight these charges and is preparing for trial,” Richard Strassberg, a lawyer for Martoma at the firm of Goodwin Procter, said in an email.
Jury selection begins on Tuesday and the trial is expected to run three to four weeks.
The trial will come less than a month after a jury in the same courthouse in New York convicted another SAC portfolio manager, Michael Steinberg, of also trading on inside information.
Meanwhile, SAC Capital pleaded guilty in November to fraud charges stemming from insider trading by its employees and agreed to pay $1.2 billion in penalties.
SAC Capital has also entered into a $616-million accord with the US Securities and Exchange Commission to resolve similar claims. The agency is separately seeking to bar Cohen from the financial industry for failing to supervise Martoma and Steinberg.
Once a $14-billion fund, SAC Capital is converting itself into a so-called “family office” to manage Cohen's own money. Key witnesses at the trial are expected to include the two doctors, Sidney Gilman and Joel Ross, who are cooperating with the government under non-prosecution agreements.
Gilman, a former