By Jonathan Stempel
NEW YORK Dec 17 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.
U.S. District Judge Paul Gardephe in Manhattan said
Martoma's alleged trades in American depository receipts of
Irish drugmaker Elan Corp 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 Jan. 6 trial.
Martoma's lawyer Richard Strassberg, a partner at Goodwin
Procter, did not immediately respond to a request for comment.
SAC, the Stamford, Connecticut-based hedge fund run by
billionaire Steven A. Cohen, pleaded guilty on Nov. 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.
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.
But Gardephe said the Elan ADRs were listed and traded on
the New York Stock Exchange, "an official American securities
exchange," and that Martoma cited no case to show that Section
10(b) should not apply.
The judge also rejected Martoma's argument that because
Elan's ADRs were mere "receipts," the trades qualified as
foreign because "liability was incurred and title passed" when
Elan deposited the associated shares with the Bank of Ireland.
"Defendant's arguments are not persuasive," Gardephe said.
"Here, it is undisputed that the Elan ADRs at issue were traded
on the NYSE, which means that the formation of contracts for
those trades, the passing of title to those securities, and the
incurring of liability on the part of sellers and purchasers of
those ADRs occurred in the United States."
U.S. prosecutors have charged eight SAC employees with
insider trading. Six have pleaded guilty, while Martoma and
portfolio manager Michael Steinberg pleaded not guilty. Jurors
began deliberating in Steinberg's trial on Tuesday.
The case is U.S. v. Martoma, U.S. District Court, Southern
District of New York, No. 12-cr-00973.