Judges hear appeal of portfolio manager's conviction

FILE- In this Feb. 6, 2014, file photo, Mathew Martoma, a former SAC Capital portfolio manager, arrives at federal court in New York. Attorney Paul Clement asked the 2nd U.S. Circuit Court of Appeals in Manhattan on Tuesday, May 9, 2017, to reverse the 2014 conviction of Martoma, who is serving a nine-year prison sentence after his conviction on securities fraud and conspiracy charges. (AP Photo/Mark Lennihan, File)

NEW YORK – The legal definition of insider trading is being scrutinized by a federal appeals panel considering whether an ex-portfolio manager who worked for billionaire Steven A. Cohen was wrongly convicted.

Attorney Paul Clement asked the 2nd U.S. Circuit Court of Appeals in Manhattan on Tuesday to reverse the 2014 conviction of Mathew Martoma. The court didn't immediately rule, and the judges through their questions didn't make it obvious which way they were leaning. The 2nd Circuit previously refused to let Martoma remain free during appeal as it sometimes does when it finds there are novel legal issues at stake.

Martoma, 42, is serving a nine-year prison sentence after his conviction on securities fraud and conspiracy charges in what prosecutors described as the most lucrative insider-trading scheme of all time. He's due to be released from a Miami lockup in 2021.

Martoma formerly worked for Cohen at the Stamford, Connecticut-based SAC Capital Advisors, where prosecutors say he helped the company earn more than a quarter-billion dollars via illegal insider trading, the practice of using access to secret information to trade for profit on the stock exchange.

Prosecutors said Martoma persuaded doctors with secret knowledge of an experimental Alzheimer's drug to share what they knew with him ahead of public announcements.

Clement said the government failed to prove the kind of close relationship between Martoma and the doctors that's required to gain a conviction in an insider-trading case. The defense also alleges procedural errors by the trial judge should result in a new trial, and it's challenging the sentence.

Assistant U.S. Attorney Robert Allen told the appeals panel that evidence of the kind of relationship that supports insider-trading charges was strong with one of the doctors, Sidney Gilman, a former professor of neurology at the University of Michigan Medical School who was one of the world's top Alzheimer's experts.

But Circuit Judge Rosemary S. Pooler questioned whether proof of a close personal relationship stemmed mostly from evidence of Martoma's efforts to get close to Gilman.

"Can it be a close personal relationship if it only goes one way?" she asked.

Judge Denny Chin made note of the government's proof of a close relationship between Martoma and Gilman, which included numerous conversations, meetings and a two-year consulting relationship during which Gilman was paid $1,000 per hour.

"Why isn't that enough?" he asked.

Clement answered that it wasn't enough in light of a 2nd Circuit ruling in 2014 that tossed out two insider-trading convictions.

During the trial, Gilman testified that he was charmed by Martoma, of Boca Raton, Florida. He said Martoma seemed more knowledgeable about his work than hundreds of other financial professionals who paid Gilman more than $1 million over several years for consultations.

SAC Capital pleaded guilty to fraud charges and agreed to pay $1.8 billion to settle charges that it allowed, if not encouraged, insider trading for more than a decade. But Cohen has disputed the allegations involving his company.

Last year, the Securities and Exchange Commission announced it had settled a civil case against Cohen, leaving him barred for two years from managing other people's money. However, he was not fined and neither admitted nor denied the SEC's allegations.