The largest insider trading scheme on record started with an attempt at friendship.
That was the testimony on Friday of Sidney Gilman, an 81-year-old doctor who took the stand for the first time as the central witness for prosecutors in the trial of Mathew Martoma, a former portfolio manager at SAC Capital Advisors who is accused of trading on confidential information supplied by Dr. Gilman.
Dr. Gilman, who took the stand on the sixth day of the trial, testified that the passing of confidential information started by accident. The doctor said he “slipped” in giving Mr. Martoma details about side effects of an experimental Alzheimer’s drug. But over time, because of Mr. Martoma’s persistence and desire to become friends with him, he routinely gave details about a clinical trial he was not supposed to share.
“He said he wanted to be friends,” Dr. Gilman testified. “He said that to me several times.”
Early in Dr. Gilman’s testimony, Arlo Devlin-Brown, an assistant United States attorney, asked him whether he recognized Mr. Martoma in the courtroom. Dr. Gilman scanned the room for a few moments and then said he needed to put on his glasses, at which point he stared at the table where the defendant was seated and proceeded to describe Mr. Martoma to the jury.
Dr. Gilman kept his eyes on Mr. Martoma for a few minutes after Mr. Devlin-Brown asked him another question. At times Dr. Gilman asked for questions to be repeated, saying he couldn’t hear them and noting that he wears hearing aids.
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VideoThe crux of the government’s case against Mr. Martoma, 39, is that Dr. Gilman provided him with confidential information in July 2008 about negative results from the clinical trial for the Alzheimer’s treatment, which was being developed by two drug companies, Elan and Wyeth. Prosecutors contend the inside tip helped SAC make trades that enabled it to avoid losses and generate profits totaling $276 million, the largest insider trading scheme on record. The trial is the most prominent case to come out of the government’s long investigation into SAC, which has led to a guilty plea by the firm to insider trading and tarnished its owner and founder, the billionaire investor Steven A. Cohen.
Prosecutors contend that Mr. Martoma “seduced” then “corrupted” Dr. Gilman by encouraging him to leak confidential information that not even employees at Elan and Wyeth were privy to.
Dr. Gilman testified that he initially thought sharing information was inappropriate because he was being paid as a consultant to provide only general information about medical issues related to Alzheimer’s and neurological ailments but, he said, the relationship changed over time.
Dr. Gilman, who held a longtime teaching position at the University of Michigan Medical Center, was chairman of the safety committee for Elan during the clinical trial and a consultant with an expert network firm, the Gerson Lehrman Group, which sets up meetings between hedge funds and industry and scientific experts. Mr. Martoma became acquainted with Dr. Gilman through his association with Gerson Lehrman, which began in January 2006.
In October 2006, Dr. Gilman said, he met Mr. Martoma in person for the first time at SAC’s offices in New York. He said the meeting was arranged by Gerson Lehrman and he said he was impressed that Mr. Martoma had catered the meeting with sandwiches.
Dr. Gilman said Mr. Martoma was bright, friendly and inquisitive. “I wish I had students like him,” he told the jury.
At moments, Dr. Gilman, who spoke with a firm voice and spoke with authority about medical terminology and disease of the brain, also showed signs of a faulty memory. For instance, he couldn’t remember if the first time he had passed on information was late 2006 or early 2007. “I cannot be more specific than that,” Dr. Gilman said, apologizing to Mr. Devlin-Brown.
In a sign of support, three friends of Mr. Martoma attended the trial on Friday, joining Mr. Martoma’s wife, Rosemary, and his parents and his wife’s mother. The family has been a constant presence in the courtroom.
Dr. Gilman testified about his job on the safety committee, saying that “all the material we saw was to be kept confidential.” But he said he violated that when it came to passing information on to Mr. Martoma.
Dr. Gilman also said that he knew as a consultant for Gerson Lehrman he was not supposed to provide Mr. Martoma with specific details of the clinical trial, yet he did.
He testified that he provided Mr. Martoma with the dates of safety committee meetings, after which Mr. Martoma would arrange a meeting with Dr. Gilman through Gerson Lehrman so that he could pass on inside information.
“He wanted very specific information,” said Dr. Gilman, who spoke to Mr. Martoma by phone. “It sounded like he was copying numbers down.”
Dr. Gilman said at no point did Mr. Martoma tell him not to give him inside information, and no one from SAC’s compliance office ever contacted him to find out what the two were talking about.
Dr. Gilman says he told Mr. Martoma about problems with the clinical trial in July 2008. Prosecutors contend that he sent a detailed presentation about the clinical trial to Mr. Martoma by email and that the two men talked about it on the phone. A few days later, Mr. Martoma flew to Ann Arbor, Mich., to meet Dr. Gilman.
After that meeting, prosecutors charge that Mr. Martoma called Mr. Cohen and had a 20-minute phone call with him. The next day, July 21, 2008, SAC began to dump its shares in Elan and Wyeth, unwinding a $700 million stake in the two companies.
Mr. Cohen has not been charged with any wrongdoing, but prosecutors and federal authorities remain interested in learning what Mr. Martoma said to his former boss during that 20-minute phone call.
Earlier this week, another doctor, Joel S. Ross, testified that he also provided Mr. Martoma with inside information over the years and said he was impressed by the level of detail Mr. Martoma knew about the clinical trials for the experimental drug. Dr. Ross testified that it was almost as if Mr. Martoma “was in the room” when the clinical trials were being discussed.
Both doctors are cooperating with the government and received nonprosecution agreements in return for their help and testimony against Mr. Martoma. Dr. Gilman testified in a settlement with regulators that he paid back $186,000 in consulting fees.
Dr. Gilman said on Friday that he retired from his teaching position after Mr. Martoma was arrested in November 2012 rather than be fired because of the disclosure he had provided insider information to him.