Doctor at Insider Trading Trial Testifies, ‘It Was Like He Was in the Room’

Prosecutors may not have any taped conversations showing how a former SAC Capital Advisors hedge fund manager, Mathew Martoma, engineered what they have called the biggest insider trading scheme in history. But testimony from one doctor indicates that Mr. Martoma knew the specific results of a clinical drug trial before they were publicly known.

On the witness stand for a second day on Wednesday, Dr. Joel S. Ross told the jury how Mr. Martoma knew so much detail about a confidential presentation that Dr. Ross and other medical experts had just listened to, “It was like he was in the room with me and the slides I had just seen.”

The presentation was given by Dr. Michael Grundman, vice president of clinical development at Elan, on July 28, 2008. It was the first time that investigators in a clinical trial for an Alzheimer’s drug being developed by Elan and Wyeth were made privy to the results of the trial. The results, which were negative, would not be publicly announced until the following day, sending the share prices of Elan and Wyeth down sharply.

Knowing the results ahead of the public announcement gave Mr. Martoma an “illegal edge” that helped SAC avoid losses and make gains of $276 million, the government contends. Mr. Martoma’s case, which includes two counts of securities fraud and one count of conspiracy, turns on testimony from Dr. Ross and a second doctor who participated in the drug trial.

Dr. Sidney Gilman, the second doctor and the government’s star witness, is an 81-year-old retired University of Michigan professor. He has not yet testified, but Mr. Martoma’s lawyers have already sought to discredit him, raising questions about his memory. Dr. Gilman was undergoing cancer treatment in the years that Mr. Martoma cultivated a relationship with him, and one of the drugs he was taking at the time is known to cause “confusion,” Richard Strassberg, one of Mr. Martoma’s lawyers, said in his opening statement.

Dr. Ross testified on Tuesday that he was introduced to Mr. Martoma through HCRC, a firm that arranged for paid consultations between investors and experts in specific fields. While Mr. Martoma paid for many meetings with Dr. Ross (at the rate of $1,500 an hour), the two met on several occasions outside of those meetings, the jury was told.

At one point, Dr. Ross said he asked Mr. Martoma to help introduce him to biotechnology companies that might be interested in using his newly opened research center to conduct their clinical trials. Mr. Martoma promised to help, Dr. Ross testified.

On Tuesday, jurors were shown emails between the two arranging to meet the night before Elan would publicly announce the results of the second phase of its clinical trial to test the Alzheimer’s drug called bapineuzumab. Dr. Ross testified that he left the meeting about the final trial results early to meet with Mr. Martoma.

On Wednesday, Dr. Ross elaborated on his meeting with Mr. Martoma, which took place in the lobby of the Hyatt McCormick in Chicago, and described his surprise at hearing Mr. Martoma discuss details about the trial results that Dr. Ross had not yet given him.

Dr. Ross said he told Mr. Martoma that he was still optimistic despite negative results. But, Dr. Ross recalled, “He said, ‘I don’t understand how you can say that with the statistical evidence showing otherwise.’”

Asked when was the last time he saw Mr. Martoma, Dr. Ross replied that it was nearly six years ago in that Hyatt McCormick lobby. He told the jury that Mr. Martoma never referred him to any biotechnology companies.

The defense began to cross-examine Dr. Ross just before the jury took a break for lunch and will continue on Wednesday afternoon.