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UPDATE 1-US insider trading witness 'flabbergasted' by Martoma knowledge

Nate Raymond
Wednesday, 15 Jan 2014 | 5:45 PM ET

NEW YORK, Jan 15 (Reuters) - A doctor testifying in the insider trading trial of Mathew Martoma said Wednesday the former SAC Capital Advisors trader appeared to already know results from a drug trial that many researchers in the study themselves had only just learned.

Joel Ross, a New Jersey doctor involved in the clinical trial for an Alzheimer's drug, told jurors in federal court in New York that he met with Martoma in July 2008 just after he and other doctors involved in the study were told the results of the trial.

But during the meeting in the lobby of a Chicago hotel, Ross said Martoma "flabbergasted" him by appearing to know almost exactly various statistics the doctor had just learned at a presentation for researchers and which would not be made public until the next day.

"It was like he was in the room with me with the slides I had just seen," Ross said.

Martoma is one of eight current or former employees at Steven A. Cohen's SAC Capital hedge fund to face charges over insider trading.

Prosecutors say Martoma, a portfolio manager at SAC's CR Intrinsic Investors, used inside information to build up a $700 million position in Elan Corp Plc and Wyeth and then pushed the hedge fund to sell it off in 2008, before the trial results came out. Wyeth is now a unit of Pfizer Inc.

Thanks to those trades, SAC made profits and avoided losses of $276 million, the indictment said.

Ross' account gives extra weight to the prosecutors' contention that Martoma already knew the results of the clinical trial thanks to another doctor, Sidney Gilman, who prosecutors say began sharing the results 11 days earlier.

Later, under questioning by Martoma's defense team, Ross conceded that Martoma, 39, did not tell him he got the information from Gilman, nor that he had already seen slides from the presentation.

"He never told you ahead of time that he already had access to the slides, did he?" Roberto Braceras, a lawyer for Martoma, asked.

"No," Ross said.

SAC Capital, which once managed $14 billion, has agreed to pay $1.8 billion in criminal and civil settlements and plead guilty to fraud charges stemming from insider trading by its employees. Cohen has not been criminally charged and has denied wrongdoing.

Ross, 58, acted as a clinical investigator on the Phase II drug trial, overseeing about 25 patients through his Memory Enhancement Center of America Inc clinic out of roughly 240 participating overall.

Much of the government's questioning Wednesday focused on the events of July 28, 2008, a day before the results of the clinical trial would be announced publicly at an Alzheimer's disease conference in Chicago.

Ross and other doctors acting as principal investigators in the study of the drug, bapineuzumab, were scheduled to receive those same results a day earlier at the same conference, which was held in a downtown Chicago hotel.

Before the doctors learned the results, Martoma and Ross made plans to discuss them right afterwards, Ross said.

The presentation the doctors received, which was shown at trial, was filled with complicated graphs, statistics and medical jargon. But Ross gave jurors a bottom-line summary: "The drug did not work."

After the presentation, Ross said, he met Martoma in the hotel's lobby.

Ross said that when he told Martoma he was still hopeful about the drug, the SAC trader questioned how he could be so optimistic, citing various data that the doctor said he had only just seen at the presentation.

"I was, if not flabbergasted, then very surprised he knew that," Ross said.

Prosecutors have alleged that Martoma already knew the results after receiving them from Gilman, a former professor at the University of Michigan who chaired the drug's safety monitoring committee.

According to the prosecution, Gilman, 81, told the results to Martoma over the phone on July 17, 2008. Martoma went to meet with Gilman at his office in Ann Arbor, Michigan, two days later, on a Saturday, where he reviewed a presentation about the results.

Both Ross and Gilman were connected with Martoma through so-called expert networking firms, which pair investors with industry experts.

Ross has testified that he spoke to Martoma through paid consultations arranged by a firm called HCRC. An email shown at trial Wednesday included email addresses for HCRC employees similar to the URL for a defunct website for a New York-based firm called Healthcare Research & Consulting.

Both Ross and Gilman are cooperating with the government pursuant to non-prosecution agreements. Gilman is expected to testify later in the trial.

During testimony Wednesday, Ross acknowledged that at the end of the trial, he will "get to go home," as Braceras, the attorney for Martoma, put it during questioning.

"I hope to resume the practice of care for my Alzheimer's patients," he said.

Ross acknowledged that when first approached by the Federal Bureau of Investigation, he told an agent that he didn't have any material information to share with the government.

Despite the non-prosecution agreement, Ross said he continues to oversee eight to 10 clinical trials. However, he said "a great deal of business has been lost since my name entered the paper" and added he had struggled to keep his staff.

"My client's life is at stake here, and you are complaining about money?" Braceras said, in a question the judge quickly sustained on objection from a prosecutor.

The case is U.S. v. Martoma, U.S. District Court, Southern District of New York, 12-cr-00973.