Steven A. Cohen is not likely to testify at the insider trading trial of Mathew Martoma,  a former trader at SAC Capital Advisors, but Mr. Martoma  wants to use some of the testimony that the hedge fund’s owner gave in a related investigation.
Mr. Martoma is seeking to introduce deposition testimony that Mr. Cohen gave the Securities and Exchange Commission in May 2012 in an effort to show that the SAC Capital founder’s decision to make big trades in the shares of the drug companies Elan and Wyeth in 2008 was influenced more by the manager of another hedge fund than by Mr. Martoma.
The attempt by Mr. Martoma to use Mr. Cohen’s own words to prove his innocence could add an interesting wrinkle to the trial, scheduled to begin on Jan. 6 in the Federal District Court in lower Manhattan. If the trial judge permits Mr. Martoma’s defense lawyers to introduce portions of Mr. Cohen’s deposition, it would make the billionaire investor a more critical figure in the trial, even though he is not expected to be called as a witness.
Mr. Cohen sat for the S.E.C. deposition about six months before federal prosecutors charged Mr. Martoma with using inside information about a clinical drug trial to help SAC Capital avoid $276 million in losses in shares of the two companies. Authorities contend that Mr. Martoma, relying on non-public information from a doctor who was a consultant on the clinical trial for an experimental Alzheimer’s drug, recommended that SAC Capital sell a big stake it had in shares of Wyeth before the news of the drug trial became public.
But Mr. Martoma, in court papers filed late Friday, argues that Mr. Cohen’s deposition testimony rebuts the government’s allegation that his recommendation is what prompted Mr. Cohen and SAC Capital to sell its shares in Wyeth and to begin shorting, or betting against, the shares of Elan.
In the filing, Richard Strassberg, one of Mr. Martoma’s lawyers, contends that the “unrebutted sworn testimony of Mr. Cohen, SAC’s owner, makes clear that Mr. Martoma had nothing to do with that decision,†referring to the trading in shares of Wyeth. Mr. Strassberg also says that Mr. Cohen, in his deposition, largely credited Wayne Holman, a former SAC Capital trader who left to start his own hedge fund, with influencing his decision to initially put on a big trade in shares of Wyeth and then to get out of it in the summer of 2008.
“Mr. Cohen has testified that he made the decision to sell Wyeth securities in consultation with Mr. Holman (not Mr. Martoma), a former SAC health care portfolio manager,†Mr. Strassberg wrote.
The filing quotes a portion of Mr. Cohen’s deposition in which he describes Mr. Holman as “one of the great health care investors I have ever met and so I have a ton of respect for his work.â€
At one point in the deposition, in response to a question from an S.E.C. lawyer, Mr. Cohen said that he had talked to Mr. Holman in July 2008 and learned that he had soured on Wyeth and was selling the stock.
Mr. Cohen also testified that he considered the trader a friend and that he and his wife socialized with Mr. Holman and his wife. SAC Capital also invested money with Mr. Holman’s fund, Ridgeback Capital Management, and Mr. Holman had a consulting agreement with SAC Capital.
A spokesman for Mr. Cohen did not immediately respond for comment. Mr. Holman, who reportedly has liquidated most of his fund’s holdings, did not return a request for comment.
The move by Mr. Strassberg to introduce some of Mr. Cohen’s deposition comes as a close associate of Mr. Cohen’s, Michael Steinberg, is currently on trial on charges he used inside information while working at SAC Capital to make trades in shares of Dell and Nvidia. The Steinberg trial began just weeks after SAC Capital pleaded guilty to securities fraud charges and agreed to pay $1.2 billion to federal prosecutors and to stop managing money for outside investors.
A major witness against Mr. Steinberg, former SAC Capital analyst Jon Horvath, recently testified under cross-examination that he did not remember Mr. Steinberg ever explicitly telling him to get illegal inside information. Mr. Horvath also said that he did not recall telling Mr. Steinberg some of the information he was providing him to make trades was non-public corporate information.
Federal authorities have not criminally charged Mr. Cohen, but the S.E.C. has filed an administrative action against the highly successful trader, contending that he failed to properly supervise the employees at his firm.
Mr. Strassberg is asking the trial judge to either limit prosecutors from introducing evidence that Mr. Martoma played a role in SAC Capital’s decision to sell Wyeth shares, or to permit his client to counter that evidence with Mr. Cohen’s deposition.
Mr. Cohen’s lawyers have indicated that the billionaire investor will assert his constitutional right not to testify if he is called by either side, Mr. Strassberg noted in the court filing.
It’s not clear how the the judge will rule on the lawyer’s request. But the filing is of interest because it provides the first extended glimpse into Mr. Cohen’s testimony before the S.E.C., which filed its own civil fraud charges against Mr. Martoma.
The portion of the deposition included in the court filing reveals that Mr. Cohen often answered questions by saying that he either couldn’t recall something or couldn’t remember. In the excerpt, Mr. Cohen credits both Mr. Martoma and Mr. Holman with convincing him of the merits of initially going into shares of Wyeth. He also testified that Mr. Martoma was initially bullish ion shares of Elan.
Mr. Cohen also said the decision to short shares of Elan was mainly to “hedge†what remained of the firm’s long position in Wyeth.
Here is how Mr. Cohen, for instance, testified before the S.E.C. on how his fund decided to invest in Wyeth:
Q: At the beginning of 2008, did SAC have an investment in Wyeth?
A: I believe so.
Q: In the beginning of 2008 were you bullish or bearish on Wyeth?
A. I was bullish based on the recommendation of Mat Martoma and Wayne Holman. And there may have been others that were bullish; I don’t remember.
