United States District Court, S.D. New York
MEMORANDUM OPINION & ORDER
PAUL G. GARDEPHE, District Judge.
On February 6, 2014 - after a month-long trial - a jury convicted Defendant Mathew Martoma of conspiracy to commit securities fraud, in violation of 18 U.S.C. § 371, and of two substantive counts of securities fraud, in violation of 15 U.S.C. §§ 78j(b) and 78ff, 17 C.F.R. §§ 240.10b-5 and 240.10b5-2, and 18 U.S.C. § 2. The Superseding Indictment charges that between summer 2006 and July 29, 2008, Martoma caused his employer, the hedge fund S.A.C. Capital Advisors, LLC ("SAC Capital"), to trade on the basis of material non-public information. (Superseding Indictment (Dkt. No. 61) ¶¶ 1, 8, 14) The evidence at trial showed that Martoma obtained material, non-public information from two doctors - Sidney Gilman and Joel Ross - about the Phase II clinical trial of bapineuzumab, a drug it was thought might be useful in treating Alzheimer's disease. Elan Corporation, plc ("Elan") and Wyeth owned rights to the drug and were responsible for the clinical trial. The charges against Martoma relate to trading in the securities of these companies.
Martoma has moved for a judgment of acquittal under Federal Rule of Criminal Procedure 29 or, alternatively, for a new trial under Federal Rule of Criminal Procedure 33. (Dkt. No. 270) For the reasons stated below, Martoma's motions will be denied.
I. THE EVIDENCE AT TRIAL
The evidence at trial overwhelmingly demonstrated Martoma's guilt on all three counts in the Superseding Indictment.
During the summer 2006 to July 29, 2008 time period cited in the Superseding Indictment, Martoma served as a portfolio manager at SAC Capital. (Trial Transcript ("Tr.") 112-17, 434-35) Both of Martoma's alleged co-conspirators - Dr. Sidney Gilman and Dr. Joel Ross - testified that during this period they disclosed material, non-public information concerning the Phase II clinical trial of bapineuzumab to Martoma. Dr. Gilman and Dr. Ross's improper disclosures to Martoma included the clinical trial's final results on efficacy, which were not publicly disclosed until the International Conference on Alzheimer's Disease (the "ICAD conference") on July 29, 2008. Pursuant to confidentiality agreements, both doctors had been given access to confidential information about the study because of their roles in the clinical trial. Dr. Gilman was the chair of the study's Safety Monitoring Committee (the "SMC"), while Dr. Ross was one of the study's principal clinical investigators. (Tr. 568, 1168)
The evidence showed that, over a two-year period, Martoma cultivated relationships with Dr. Gilman and Dr. Ross through expert networking agencies. (Tr. 557, 588, 1231-32) Dr. Gilman was paid approximately $1000 an hour to speak with Martoma about treatments for Alzheimer's disease through the Gerson Lehrman Group ("GLG"). (Tr. 1228, 1543) He had at least 43 consulting sessions with Martoma, most of which took place by telephone. (GX 601) The evidence showed that Dr. Gilman regularly shared the confidential safety data disclosed at the SMC meetings with Martoma, generally on the day of the meeting or the following day. (Trial Tr. 1272-76; GX 209; GX 210; GX 211; GX 212; GX 213; GX 601) Throughout this period, Martoma and SAC Capital amassed large positions in Elan and Wyeth securities. (Tr. 124-25, 130, 472-83, 2267; GX 431; GX 436; GX 565-C; GX 1256; GX 1260) The Government's theory at trial was that Dr. Gilman's improper disclosure of the safety data permitted Martoma and SAC Capital to build and maintain these positions, secure in the knowledge that no serious adverse reaction would derail the study (as had happened with a precursor drug to bapineuzumab). (Tr. 2941-43, 2950-60, 3134-35)
At the conclusion of the 18-month bapineuzumab Phase II clinical trial, Elan asked Dr. Gilman to present the final results at ICAD, in Chicago, on July 29, 2008. (Tr. 1396) Dr. Gilman was not unblinded to this data until July 15 and 16, 2008. (Tr. 1413) Analysis of the final results showed that the drug had not met the study's efficacy endpoints - i.e., the study's results did not indicate that bapineuzumab was efficacious for the treatment of Alzheimer's disease. (Tr. 692, 703, 1420-23) The data also showed no dose effect (i.e., administering more of the drug did not yield better results for patients), suggesting a lack of efficacy. Finally, the mental condition of the placebo group in the non-gene carrier cohort had - for reasons that are not clear - deteriorated much more quickly than the placebo group in the carrier cohort, suggesting some type of flaw in the study or in the data. (Tr. 1420-24)
Elan provided the data to Dr. Gilman in the form of a draft PowerPoint presentation for the ICAD conference. Dr. Gilman testified that on July 17, 2008, he went through the data in the PowerPoint slides with Martoma by telephone. (Tr. 1424, 1439) The Government introduced telephone records showing that Dr. Gilman and Martoma had a one-hour and forty-five minute call that evening. (GX 1211)
The evidence further showed that that same day - July 17, 2008 - Martoma bought a round-trip ticket on Delta Air Lines for travel between JFK airport in New York and Detroit, Michigan, on Saturday, July 19, 2008. (Tr. 1950, 1952; GX 1307; GX 1308) The testimony of Dr. Gilman and a Detroit cab driver, University of Michigan access card logs, and cell phone tower records show that on Saturday, July 19, 2008, Martoma flew to Detroit, and took a cab from the Detroit airport to the University of Michigan's campus in Ann Arbor. (Tr. 1453-56, 1968-69; GX 1210; GX 1307; GX 1400; GX 1401; GX 1402) There, he met with Dr. Gilman, at lunchtime, in Dr. Gilman's office. (Trial Tr. 1453-56) During this meeting, Dr. Gilman showed Martoma the PowerPoint slides containing the efficacy results, and discussed the data with him in detail. Given that Martoma had studied potential treatments for Alzhemier's disease for more than two years, and had had countless consultations with medical experts, including Dr. Gilman, Dr. Ross, and others (Tr. 177, 588, 591, 601-16, 613, 626, 1235, 1390, GX 601, DX 791, DX 800), a reasonable jury could have concluded that Martoma had - by that time - a highly sophisticated understanding of the science behind bapineuzumab and was well-equipped to understand the practical significance of the clinical trial results. A reasonable jury could likewise have concluded that Martoma recognized that, in light of the bapineuzumab study's final results, it was highly unlikely that the drug would receive U.S. Food & Drug Administration ("FDA") approval at any point in the foreseeable future.
After his lunchtime meeting with Dr. Gilman, Martoma flew back to JFK airport that same afternoon. (Tr. 1952-53; GX 1307) The next morning, Sunday, July 20, 2008, he sent an email to the principal of SAC Capital, Steven A. Cohen, asking whether the two could speak by telephone that morning. (GX 459) In the subject line of the email Martoma wrote, "It's important." Telephone records introduced at trial show that the two men had a 20-minute conversation on Sunday, July 20, 2008. (GX 1215) The next day, Monday, July 21, 2008, SAC Capital began selling the approximately $700 million in Elan and Wyeth securities that it was then holding. (Tr. 151-52, 520-22, 2266-67, 2272-75, 2279-80, 2282-93, 2490; GX 431; GX 432; GX 436; GX 554-C; GX 1256; GX 1260) SAC also entered into significant short transactions involving Elan and Wyeth securities. (Tr. 2385, 2387)
The evidence at trial showed that the sale of Elan and Wyeth securities was kept secret at SAC Capital. Martoma did not tell the research analyst (Kathryn Lyndon) and execution trader (Tim Jandovitz) who worked for him that the positions were being sold. Indeed, their computer monitors showed that Martoma's portfolio - the "GEHC" portfolio - was still holding these securities long after they had been sold. (Tr. 150-54, 2068-69, 2075-77) Only Martoma, Cohen, and Cohen's head trader - Phillip Villhauer - knew that these huge positions were being sold. (Tr. 2279-80) Longtime employees of SAC, including Chandler Bockledge - Cohen's "right-hand man" - testified that SAC had never sold positions in such a secret fashion before. (Tr. 2537, 2562-63, 2566)
On July 28, 2008, during an evening dinner for Dr. Joel Ross and others who had served as principal investigators for the bapineuzumab Phase II clinical trial, Elan disclosed the study's efficacy results. The evidence showed that Martoma had arranged to meet with Dr. Ross immediately after the presentation, in the lobby of the hotel where the presentation was to take place. (Tr. 714; GX 375) Dr. Ross told Martoma that bapineuzumab had not shown efficacy in treating Alzheimer's disease, and the two men discussed some of the data that had just been disclosed at the principal investigators' dinner. Dr. Ross testified, however, that Martoma appeared to already know all the details of the data; Dr. Ross commented that it was almost as if Martoma had been "in the room" when the data were disclosed. (Tr. 715-17)
The next day - July 29, 2008 - Dr. Gilman presented the bapineuzumab efficacy results to the attendees of the ICAD conference. (Tr. 2381, 2395-96) Elan's stock price began dropping even before Dr. Gilman had completed his fifteen minute presentation. (Tr. 2381, 2396; GX 1263) Ultimately, the stock dropped 42% over that day. (Tr. 2379) Wyeth stock suffered a decline of about 12% that day. (Tr. 2383)
After July 29, 2008, when Martoma's research assistant (Lyndon) and execution trader (Jandovitz) discovered that SAC's holdings in Elan and Wyeth stock had been liquidated - including the shares held in Martoma's "GEHC" portfolio - they asked Martoma what had led him to sell. Martoma said merely that he had reviewed his notes and decided that he was no longer comfortable holding the stock. (Tr. 151-54, 2076-77)
As a result of the trades in Elan and Wyeth securities during the week leading up to the ICAD conference, SAC Capital made profits from the short sales and avoided losses totaling $275 million. (Tr. 2391; GX 1268)
II. MOTION FOR A JUDGMENT OF ACQUITTAL UNDER FED. R. CRIM. P. 29
A. Legal Standard
Under Fed. R. Crim. P. 29, a trial court "must enter a judgment of acquittal of any offense for which the evidence is insufficient to sustain a conviction." Fed. R. Crim. P. 29(a).
To prove Martoma guilty of the substantive securities fraud counts at trial, the Government was required to demonstrate, by proof beyond a reasonable doubt, that Martoma (1) in connection with the purchase or sale of the security specified in each count, had employed a device, scheme or artifice to defraud, or engaged in an act, practice or course of business that operated, or would operate, as a fraud or deceit upon a purchaser or seller of the specified security; (2) acted willfully, knowingly, and with the intent to defraud; and (3) knowingly used, or caused to be used, any means or instrument of transportation or communication in interstate commerce or the mails, or any facility of any national securities exchange, in furtherance of the fraudulent conduct. (Tr. 3181) To prove Martoma guilty of the charged conspiracy, the Government was required to demonstrate, by proof beyond a reasonable doubt, that (1) between the summer of 2006 and July 29, 2008, an agreement or understanding between two or more people existed to commit securities fraud; (2) Martoma intentionally and knowingly joined and participated in that conspiracy during the applicable time period; and (3) during the life of the conspiracy, one of the conspirators knowingly committed at least one overt act in furtherance of the conspiracy in the Southern District of New York. (Tr. 3201-02)
"In considering a motion for judgment of acquittal, the court must view the evidence presented in the light most favorable to the government, " and "[a]ll permissible inferences must be drawn in the government's favor." United States v. Guadagna , 183 F.3d 122, 129 (2d Cir. 1999). "[U]pon a motion for judgment of acquittal, the Court must determine whether upon the evidence, giving full play to the right of the jury to determine credibility, weigh the evidence, and draw justifiable inferences of fact, a reasonable mind might fairly conclude guilt beyond a reasonable doubt.'" Id . (quoting United States v. Mariani , 725 F.2d 862, 865 (2d Cir. 1984) (internal quotations omitted)). "The court should not substitute its own determination of the credibility of witnesses, the weight of the evidence and the reasonable inferences to be drawn for that of the jury." Mariani , 725 F.2d at 865. This is because "the task of choosing among competing, permissible inferences is for the fact-finder, not for the reviewing court." United States v. McDermott , 245 F.3d 133, 137 (2d Cir. 2001). "The Second Circuit has observed that [t]hese strict rules are necessary to avoid judicial usurpation of the jury function.'" United States v. DiPietro, No. S502 Cr. 1237 (SWK), 2005 WL 1863817, at *1 (S.D.N.Y. Aug. 5, 2005) (quoting Mariani , 725 F.2d at 865) (alterations in DiPietro). Given this standard, "[a] defendant bears a very heavy burden' in challenging a conviction based on insufficient evidence." United States v. Goldstein, No. S2 01 Cr. 880 (WHP), 2003 WL 1961577, at *1 (S.D.N.Y. Apr. 28, 2003) (quoting United States v. Brewer , 36 F.3d 266, 268 (2d Cir. 1994)).
B. Insufficiency Arguments as to Substantive Securities Fraud Counts
Martoma argues that the evidence was insufficient to convict him of the substantive securities fraud counts because the Government did not establish that he received material, non-public information concerning: (1) a side effect of bapineuzumab known as vasogenic edema; (2) enrollment of participants in the clinical trial; (3) dropout rates for study participants; (4) the lack of a dose response to the drug; (5) the rate of decline in mental condition of a particular subset of study participants (those who were receiving placebo and who were carriers of the ApoE4 gene); and (6) the Phase II results to be presented at the ICAD conference. (Def. Br. (Dkt. No. 271) at 5-14; see also Aug. 14, 2014 Def. Ltr. (Dkt. No. 299) at 3-10) Martoma further argues that the Government did not show that he received material, non-public information from Dr. Ross. (Def. Br. (Dkt. No. 271) at 14-15)
The Government was not required, of course, to show that all of the information Martoma obtained from Dr. Gilman and Dr. Ross was material, non-public information, or that Martoma obtained and traded on material, non-public information from both Dr. Gilman and Dr. Ross. It is sufficient to support Martoma's securities fraud convictions that the evidence shows beyond a reasonable doubt that he traded on some material, non-public information he obtained from at least one of the doctors. (See Tr. 3185-86 ("[I]n order to find that the Government has established the first element of the crime of insider trading... the Government must prove the following beyond a reasonable doubt... that Dr. Gilman or Dr. Ross breached th[eir] duty of trust and confidence by disclosing material, non-public information about the bapineuzumab Phase II clinical trial to Martoma") (emphasis added)))
Here, a reasonable jury could have found - at the very least - that the final efficacy data Martoma obtained from Dr. Gilman prior to the ICAD conference was material, non-public information that Martoma considered when deciding to sell the Elan and Wyeth positions he was responsible for at SAC Capital, and in advising Cohen to do the same. Martoma's argument that Elan's June 17, 2008 press release about the bapineuzumab study is not materially different from the data disclosed at the ICAD conference (see Def. Br. (Dkt. No. 271) at 13-14) was not persuasive to the jury and is not persuasive to this Court. Even assuming that Dr. Thomas Wisniewski - an expert in Alzheimer's disease who testified for the defense at trial - had the knowledge necessary to "read between the lines" of the June 2008 Elan press release, there is overwhelming evidence that the investor community - from the June press release - had a more positive impression of the results of the bapineuzumab clinical study than appeared warranted after the data was disclosed at the late July ICAD conference. The investor community reacted with extreme disappointment to the data disclosed at the ICAD conference, and that reaction was ...