SAC Trader ‘Corrupted’ Doctors, Prosecutor Says

Mathew Martoma, a former SAC Capital Advisors hedge fund manager, “corrupted” doctors to get an “illegal edge” that helped him perpetrate the most lucrative insider trading scheme in history, a federal prosecutor said on Friday.

“The case is about cheating,” Arlo Devlin-Brown, an assistant United States attorney, told jurors during the opening of Mr. Martoma’s trial in Lower Manhattan. That cheating resulted in hundreds of millions of dollars for SAC and a $9.3 million bonus for Mr. Martoma.

Mr. Martoma’s lawyer countered that the government’s case was “riddled with inconsistencies and filled with reasonable doubt” and reminded the jury that Mr. Martoma’s future was on the line.

“The stakes here could not be higher,” Richard Strassberg, the lead defense lawyer said, citing “The Exonerated,” a play about six people who are wrongfully convicted of murder and other offenses.

The opening arguments were delivered to a jury of five men and seven women that includes a chief executive and a New York City bus driver, in a courtroom packed with friends and family of Mr. Martoma and spectators.

Mr. Martoma, 39, is the second SAC employee to stand trial in the Justice Department’s decade-long investigation into insider trading at SAC, which is run by the billionaire Steven A. Cohen.

The trial is at the heart of an investigation into what authorities have called a “systematic insider trading scheme.” Eight former SAC employees have been criminally charged with insider trading; six pleaded guilty. Last month, in the same courthouse, Michael S. Steinberg, another SAC trader, was found guilty of insider trading, a month after SAC agreed to pay $1.2 billion and plead guilty to insider trading.

On Friday, the lead prosecutors in Mr. Steinberg’s trial, Antonia M. Apps and Harry Chernoff, were among the spectators.

Mr. Martoma has been accused of seeking confidential information about the clinical trial of an Alzheimer’s drug and making trades in shares of the two companies developing it, Wyeth and Elan, based on that information. The trades helped the firm to avoid losses and generate profits totaling $276 million.

On Friday, the government promised to show jurors emails, phone calls and trading charts surrounding SAC’s trades of Elan and Wyeth shares, including evidence of the hedge fund’s $700 million position in Elan and Wyeth stock just two weeks before the companies announced negative results of the trial and before SAC sold all of its stock.

The government plans to bring to the witness stand Dr. Sidney Gilman, an 81-year-old retired University of Michigan professor who was also a paid consultant for Elan. During the period that Dr. Gilman worked for Elan, Mr. Martoma cultivated a business and personal relationship with Dr. Gilman and sought his “expert services” to obtain illegal tips, Mr. Devlin-Brown said.

The prosecution’s case turns on the testimony of Dr. Gilman, chairman of the safety committee for the trial of the Alzheimer’s drug, Mr. Strassberg said.

But his testimony has been a “moving target,” he added. Mr. Strassberg sought to discredit Dr. Gilman, who has reached a nonprosecution agreement with the government.

Mr. Strassberg told the jury that the government made Dr. Gilman an offer he couldn’t refuse: immunity in exchange for his cooperation. The deal was “a free pass as long as he agreed to say that he had tipped off Mathew Martoma,” he said.

While Dr. Gilman and Mr. Martoma exchanged emails and their meetings together were documented, there is no evidence to show exactly what they discussed, Mr. Strassberg said.

Mr. Strassberg also raised questions about Dr. Gilman’s memory. When he was meeting with Mr. Martoma, Mr. Strassberg said, Dr. Gilman was undergoing chemotherapy treatment for cancer and was taking prednisone, a drug that can cause side effects of “confusion.”

“The prosecution’s case does not add up,” he told the jury.

On Friday afternoon, the jury also heard testimony from the government’s first witness, Timothy W. Jandovitz, a former trader at SAC who worked with Mr. Martoma. Mr. Jandovitz, who was responsible for executing the trades for Mr. Martoma and two other portfolio managers, told the jury that he did not know that Mr. Martoma had sold his entire position in Elan.

On July 29, 2008, the day that Elan announced its failed trial, Mr. Jandovitz’s computer system still said Mr. Martoma had a significant position in Elan. When he returned to the office the next day, the hedge fund had no position in the stock.

Mr. Jandovitz said he was later told that, “Steve Cohen directed Mathew Martoma not to inform me of our decision to sell the stock.”

Over the course of the week, which included three days of jury selection, the presiding judge, Paul G. Gardephe, made several rulings that could alter proceedings of the trial, which is expected to last up to four weeks.

These included a ruling that prevents prosecutors from using evidence that Mr. Martoma fainted when first confronted by F.B.I. agents on the front lawn of his million-dollar home in Boca Raton, Fla., in November 2011.

He also ruled to exclude a May 2012 deposition by Mr. Cohen, SAC’s founder, in which he told Securities and Exchange Commission investigators that he sold shares of Wyeth after discussing the company with another analyst at SAC. The defense argued the evidence would help exonerate Mr. Martoma.