NEW YORK (Reuters) - Former SAC Capital Advisors portfolio manager Mathew Martoma cannot introduce excerpts from a deposition of his former boss, billionaire Steven A. Cohen, in his defense against criminal insider trading charges, a Manhattan federal judge ruled.
While not offering an opinion on its truthfulness, U.S. District Judge Paul Gardephe said Cohen’s testimony to the U.S. Securities and Exchange Commission on May 3, 2012 was not sufficiently reliable under federal evidence rules to be admissible at Martoma’s trial, now in its second day of jury selection.
“When Cohen’s deposition was taken, SAC Capital - his company - was under investigation by the SEC for insider trading,” the judge wrote in a decision released on Wednesday. “Accordingly, Cohen had a strong motive to offer an exculpatory version of events at SAC. Allowing such self-serving testimony to be admitted, without any opportunity for cross-examination, would clearly undermine the purposes of the hearsay rule.”
Gardephe also rejected Martoma’s bid to exclude evidence about his role in SAC’s trading in drugmakers Elan and Wyeth, saying it would present issues for jurors to resolve. He deferred ruling on Martoma’s request to exclude evidence of other enforcement actions involving SAC and its employees.
The decision is a setback for Martoma, who has pleaded not guilty to securities fraud and conspiracy charges that were brought by the U.S. Department of Justice.
Martoma chose to go to trial rather than cooperate with prosecutors, while six other SAC employees pleaded guilty to criminal insider trading charges, and a seventh, Michael Steinberg, was found guilty of insider trading last month.
Richard Strassberg, a lawyer for Martoma, was not immediately available to comment as he was involved in jury selection.
Both Jerika Richardson, a spokeswoman for U.S. Attorney Preet Bharara in Manhattan, and Jonathan Gasthalter, a spokesman for Cohen, declined to comment.
Prosecutors accuse Martoma of arranging trades in Elan and Wyeth, which is now part of Pfizer Inc, in 2008 after obtaining confidential information from doctors about a clinical trial for an Alzheimer’s drug.
The government said that after learning of negative developments in the trial, Martoma spoke by phone with Cohen, and SAC then conducted hundreds of millions of dollars in Elan and Wyeth transactions. Prosecutors said this enabled SAC to make profits and avoid losses totaling $276 million.
Cohen has denied wrongdoing and has not been criminally charged, but he has long been a focus of a government probe.
In November, SAC pleaded guilty to fraud, stemming from employees’ insider trading. SAC has agreed to pay $1.8 billion in criminal and civil settlements.
Martoma had hoped to introduce excerpts from Cohen’s sworn deposition to show that Cohen, nor Martoma, made the decisions to sell Elan and Wyeth shares.
But Gardephe concluded the testimony was not reliable enough because the SEC’s questioning was “exploratory” rather than prosecutorial, and occurred long before prosecutors had developed much of a criminal case against Martoma.
Moreover, Gardephe added in a seven-paragraph footnote describing the testimony that much of what Cohen said was “consistent with the government’s theory in this case.”
In Wednesday’s court proceedings, Gardephe questioned prospective jurors for a second day for potential bias.
By the end of the day, approximately half of the 80 original prospective jurors had been excused for various reasons. Twelve jurors and four alternates will be picked for the trial, which is expected to last three to four weeks.
Gardephe told the defense lawyers and prosecutors that they were “in danger” of running out of qualified jurors and said he may need to empanel a second set of prospective jurors, a process that would likely push the start of the trial back at least another day.
Once a $14 billion fund, SAC is converting itself into a “family office” to manage Cohen’s own money.
The case is U.S. v. Martoma, U.S. District Court, Southern District of New York, 12-cr-00973.
Additional reporting by Emily Flitter; Editing by Jeffrey Benkoe and David Gregorio