Ex-SAC Trader Seeks to Use Cohen Testimony

Steven A. Cohen, the founder of SAC Capital Advisors, is not likely to testify at the insider trading trial of Mathew Martoma, a former trader at the hedge fund, but Mr. Martoma wants to use some of the testimony that Mr. Cohen gave in a related investigation.

Mr. Martoma is seeking to introduce comments made by Mr. Cohen in a deposition to 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 Federal District Court in Manhattan. If the trial judge permits Mr. Martoma’s lawyers to introduce portions of Mr. Cohen’s deposition, it would make him 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. The authorities contend that Mr. Martoma, relying on nonpublic 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 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 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” to sell 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 the stock 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.”

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, Jonathan Gasthalter, declined to comment. Mr. Holman, who has liquidated most of his fund’s holdings, according to the deposition, did not return a request for comment.

The move by Mr. Strassberg to introduce some of Mr. Cohen’s deposition comes as another former SAC trader, Michael Steinberg, is on trial on charges that he used inside information while working at the hedge fund to make trades in shares of Dell and Nvidia. The Steinberg trial began shortly 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.

Jon Horvath, a former SAC Capital analyst and a witness against Mr. Steinberg, testified last week 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 that some of the information he was providing was nonpublic corporate information.

Federal authorities have not criminally charged Mr. Cohen, but the S.E.C. has filed an administrative action against him, 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 he will assert his constitutional right not to testify if he is called by either side, Mr. Strassberg noted in the filing.

It is not clear how 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.

In a 27-page excerpt from the deposition included in the court filing, Mr. Cohen answered questions more that a dozen times by saying that he either could not recall or could not 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 on 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.