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 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.
TESTIMONY NOT RELIABLE
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.
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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)
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