Peter Nussbaum, the general counsel of SAC Capital Advisors, took the witness stand on Tuesday in a bold and surprising move by the defense at the insider trading case of Mathew Martoma, a former SAC trader.
The move came after the government rested its case and after three weeks of testimony from 20 witnesses. The defense’s case is expected to take considerably less time.
By calling on Mr. Nussbaum, the most senior employee at SAC to testify in the insider trading case, the defense could open the door for prosecutors to more closely scrutinize compliance at the multibillion-dollar hedge fund, which the government last year accused of being a “veritable magnet for market cheaters.â€
Mr. Martoma has been charged with undertaking one of the most lucrative insider trading schemes on record, and his case is at the heart of a decade of investigations into SAC, which resulted in the hedge fund pleading guilty to five counts of wire and securities fraud last November. SAC has agreed to pay a $1.2 billion penalty. It was Mr. Nussbaum who pleaded guilty on behalf of SAC.
But Mr. Nussbaum, who has overseen all legal and compliance affairs at SAC for nearly 14 years, could also help to bolster the defense’s case that Mr. Martoma did nothing wrong and that the big trades at the center of the case against him were influenced by SAC’s founder, Steven A. Cohen.
Mr. Cohen, a billionaire, has not been called as a witness but late last week emerged as an important figure in the case when the government’s main witness told the jury that F.B.I. agents had told him that he and Mr. Martoma were a “grain of sand†and that the government was really after Mr. Cohen. Mr. Cohen has not been charged criminally with any wrongdoing.
The prosecution has accused Mr. Martoma of “corrupting†two doctors who were involved in clinical trials for an experimental Alzheimer’s drug being developed by the drug makers Elan and Wyeth by seeking inside information from the doctors about the safety of the drug. Mr. Martoma then used the information, the government contends, to make trades that helped SAC avoid losses and realize profits of $276 million.
To bolster its case, the government has focused on testimony from Dr. Sidney Gilman, a former medical professor at the University of Michigan who was also a paid consultant for Elan and played a major role in the drug trial. Mr. Martoma met Dr. Gilman through the Gerson Lehrman Group, an expert network that linked hedge funds with industry experts.
But during the five days of testimony by Dr. Gilman, 81, questions were raised about his memory of important events during the critical period from 2006 to 2008, when he and Mr. Martoma spoke 43 times in paid consultations set up by Gerson Lehrman, as well as multiple other times in meetings not arranged by the expert network.
Dr. Gilman testified that he lied to F.B.I. agents and prosecutors for nearly a year and acknowledged that he recalled only some details of a meeting he had with Mr. Martoma days before the insider trading trial was to begin.
Then, when cross-examined by Richard M. Strassberg, a lawyer for Mr. Martoma, Dr. Gilman testified that his memory of interactions with Mr. Martoma had “evolved.â€
The jury has seen dozens of emails and phone records of communications between Dr. Gilman and Mr. Martoma to show the two met, often days after Dr. Gilman was given new confidential information from Elan about the drug trial.
Seeking to discredit Dr. Gilman, Mr. Strassberg focused on the flaws in the doctor’s memory and sought to show that Dr. Gilman was confused about what information was actually not in the public domain. In his opening statement, Mr. Strassberg told the jury that Mr. Martoma was just doing his job as a portfolio manager and that there was nothing sinister about seeking information.
On Tuesday, Mr. Cohen and his involvement in the sales of the Elan and Wyeth shares in 2008 came up several times in testimony.
Early in the day, the jury learned that Mr. Cohen used separate accounts to keep secret the sale of Elan and Wyeth shares. In July 2008, Mr. Cohen requested that the firm’s holdings in the two companies be moved into an account that did not have “as many eyes†watching, Phillipp Villhauer, the head of trading execution at SAC, testified.
Later, in his 15 minutes on the stand before the end of the day, Mr. Nussbaum told the jury that Mr. Cohen had a special contract with Wayne Holman, a SAC portfolio manager who left the firm in 2006 to set up his own hedge fund, to provide trading advice to Mr. Cohen about Wyeth.
