NEW YORK (Reuters) - Steven A. Cohen tried to sell stock as quietly as possible as SAC Capital Advisors unwound positions at the center of an insider trading trial, the hedge fund’s head trader said on Thursday.
The testimony came as the government called its final witnesses in the trial of former portfolio manager Mathew Martoma, putting the case within days of its conclusion.
Martoma, 39, is accused of using inside information about a drug trial to trade in the stock of Elan Corp Plc and Wyeth that helped SAC Capital make profits and avoid losses of $276 million.
Much of that trading took place in accounts controlled by Cohen after prosecutors say Martoma received a tip about negative results for a clinical trial for an Alzheimer’s drug being developed by Elan and Wyeth.
“Steve wanted to start selling Elan and he wanted to put in accounts that didn’t have as much visibility” inside SAC Capital, Phillipp Villhauer, the hedge fund’s top trader, testified.
That included making trades through accounts that only about 15 of SAC’s roughly 900 employees could view, he said, and using computer algorithms and “dark pools” instead of public exchanges to make the trades.
Under questioning by a lawyer for Martoma, Villhauer said there was “absolutely nothing improper” about the methods SAC used to minimize transparency of the trades, saying big investors used the tactic to avoid causing a stock price to fall during a sale.
Cohen, 57, has not been charged with a crime, although the U.S. Securities and Exchange Commission is seeking to bar him from the financial industry for failing to supervise Martoma and another employee the agency says took part in insider trading.
Villhauer was among the final three witnesses in the government’s case against Martoma, shifting the case to Martoma’s defense team.
Lawyers for Martoma called their first two witnesses Tuesday afternoon, including Peter Nussbaum, the general counsel for SAC Capital, who testified to an arrangement the hedge fund had with a former SAC portfolio manager to give advice on Wyeth.
The former portfolio manager, Wayne Holman, had left SAC Capital in 2006 and started up his own hedge fund, Ridgeback Capital Management. SAC Capital entered into a deal with Holman to advise on investing in Wyeth in November 2007, Nussbaum said.
“He was expected to provide his advice on Wyeth to Steve,” Nussbaum said.
The testimony could help bolster an argument by Martoma’s lawyers that SAC’s investments in Wyeth were not based solely on any of the information focused on by prosecutors.
Cohen has said in a deposition with the SEC that he decided to sell SAC Capital’s position in Wyeth after speaking with Holman. Martoma’s lawyers had sought to introduce the deposition at trial, but U.S. Judge Paul Gardephe denied the bid.
Over 12 days during the trial, prosecutors called 20 witnesses as they sought a conviction of an eighth current or former employee of Cohen’s hedge fund.
SAC Capital agreed last year to pay $1.8 billion in criminal and civil settlements and plead guilty to fraud charges stemming from insider trading by its employees.
Among the government witnesses was Sidney Gilman, a doctor who chaired the safety monitoring committee for the drug trial and testified to regularly speaking with Martoma through paid consultations arranged through Gerson Lehrman Group, a firm that connects experts with investors.
But Gilman’s memory was repeatedly tested while on the stand. The 81-year-old former University of Michigan professor said he had “some holes in my memory” regarding a key meeting with Martoma in July 2008 ahead of the negative results being announced.
Other government witnesses included Joel Ross, a New Jersey doctor who acted as a clinical investor on the trial for the Alzheimer’s drug, bapineuzumab, and said he also provided confidential information to Martoma. Both he and Gilman are testifying pursuant to non-prosecution agreements.
Richard Strassberg, Martoma’s lawyer, said he expected to finish the case for the defense by Thursday. Closing arguments could come as early as Friday, Gardephe said.
The case is U.S. v. Martoma, U.S. District Court, Southern District of New York, 12-cr-00973.
Reporting by Nate Raymond in New York; Editing by Ken Wills