UPDATE 1-Star witness takes stand in trial of SAC's Martoma

Fri Jan 17, 2014 7:02pm EST

By Nate Raymond

NEW YORK Jan 17 (Reuters) - A former University of Michigan neurology professor took the stand on Friday as the government's star witness in the insider trading trial of Mathew Martoma, saying he divulged confidential information about a drug trial to the former SAC Capital Advisors trader.

Sidney Gilman, a retired doctor who is cooperating with prosecutors, told jurors in New York federal court he leaked confidential information to Martoma about safety and efficacy of a drug under development by Elan Corp Plc and Wyeth.

"I revealed information that was confidential about a clinical drug trial to Mathew Martoma inappropriately," Gilman said.

He said Martoma told him he wanted to be his friend. And while Gilman said he at first only accidentally gave Martoma confidential information during paid consultations, over time the doctor was freely volunteering it.

Gilman, 81, is one of two doctors from whom prosecutors contend Martoma obtained information to advance a record-breaking insider trading scheme.

His testimony is seen as key in securing the conviction of Martoma, 39, one of eight current or former employees of SAC Capital to be charged with insider trading.

SAC Capital, a once $14 billion hedge fund owned by Steven A. Cohen, 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.

Cohen, 57, has not been criminally charged and has denied wrongdoing. The U.S. Securities and Exchange Commission is seeking to bar Cohen from the financial industry for failing to supervise Martoma and SAC portfolio manager Michael Steinberg, who was convicted of insider trading in December.

Gilman is expected to resume testimony on Tuesday. On cross-examination, lawyers for Martoma are expected to question Gilman's recollection and credibility.

In opening statements, Richard Strassberg, a lawyer for Martoma, told jurors that non-prosecution agreement Gilman received in exchange for his cooperation gave him a "great motivation to remember things" the way the prosecution wants.

EXPERT NETWORK

Prosecutors said that from 2006 to 2008, Martoma obtained confidential information from Gilman and another doctor, Joel Ross, about a clinical trial underway for an Alzheimer's drug called bapineuzumab being developed by Elan and Wyeth, now a unit of Pfizer Inc.

Speaking slowly at times and wearing hearing aids, Gilman told jurors how he had chaired the safety monitoring committee for the Phase II clinical trial.

During this time, Gilman said he also spoke with Martoma, a portfolio manager at SAC's CR Intrinsic Investors, through consultations arranged by Gerson Lehrman Group, a so-called expert networking firm that by 2008 was paying him around $200,000.

Gilman said that, in these consultations, he would regularly discuss data about the safety of the drug with Martoma. They would set up calls usually around the quarterly teleconferences or meetings of the safety committee, he said.

Martoma in particular showed an interest in a side-effect that could cause swelling in the brain, Gilman said. Over time, Gilman said he saw the swelling, "as a positive sign even though it was a side-effect."

"I thought it was cool," he added.

FLIGHT TO MICHIGAN

Martoma ultimately had more than 40 paid consultations for which he earned more than $70,000, Arlo Devlin-Brown, the lead prosecutor, said during opening statements last week.

While Gilman said he consulted with hundreds of other people through Gerson Lehrman, he considered Martoma "among the top 10 people in terms of inquisitiveness," saying he asked probing questions and seemed "very bright."

"I wished I had students like that," he said.

Gilman said when it came time to present the results, the drug companies chose him to present them at a Chicago conference on July 29, 2008. He was sent the results in advance, which he then shared with Martoma.

"I knew I was not allowed to do so," he added.

Prosecutors said Gilman shared the results on July 17, 12 days before they would be made public. On July 19, a Saturday, Martoma flew to Michigan to meet with Gilman in his office in Ann Arbor and review PowerPoint slides about the results, prosecutors said.

They said that after returning home, Martoma emailed Cohen on July 20 and then spoke with him for 20 minutes.

It is not known what was said, but prosecutors said SAC began selling off its $700 million position in Elan and Wyeth on July 21. When the drug trial results were announced, SAC made profits and avoided losses of $276 million, prosecutors said.

The case is U.S. v. Martoma, U.S. District Court, Southern District of New York, 12-cr-00973.