Ex-SAC manager Martoma fails to end part of insider case
By Jonathan Stempel
NEW YORK (Reuters) - A federal judge on Tuesday rejected former SAC Capital Advisors LP portfolio manager Mathew Martoma's request to dismiss some insider trading charges because they were based on transactions not covered under U.S. securities laws.
U.S. District Judge Paul Gardephe in Manhattan said Martoma's alleged trades in American depository receipts of Irish drugmaker Elan Corp ELN.I qualified as domestic transactions covered by U.S. securities laws.
As a result, the judge rejected Martoma's request to dismiss one of two securities fraud charges, as well as related allegations in a conspiracy count. The defendant has pleaded not guilty to the three counts, and faces a January 6 trial.
Martoma's lawyer Richard Strassberg, a partner at Goodwin Procter, declined to comment.
SAC, the Stamford, Connecticut-based hedge fund run by billionaire Steven A. Cohen, pleaded guilty on November 8 to fraud and agreed to pay $1.8 billion, including prior regulatory settlements, to end a federal insider trading probe. Cohen has not been charged with a crime.
Prosecutors accused Martoma of helping SAC affiliate CR Intrinsic Investors avoid $276 million of losses in 2008 by recommending that it sell shares of Elan and Wyeth, based on a doctor's tips about poor trial results for a diabetes drug. Wyeth is now owned by Pfizer Inc (PFE.N: Quote).
Martoma argued that a key U.S. insider trading law, Section 10(b) of the Securities Exchange Act of 1934, did not cover the Elan trades because a 2010 U.S. Supreme Court decision limited the reach of that law to domestic transactions.
The 2nd U.S. Circuit Court of Appeals, which hears appeals from Manhattan, in August extended that decision, Morrison v. National Australia Bank Ltd, in finding that U.S. criminal securities fraud laws don't extend outside the country. Continued...