Why Fainting Can’t Be Used in SAC Trader’s Trial

Prosecutors had argued the episode showed that Mathew Martoma knew he was guilty

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Andrew Kelly / REUTERS

Mathew Martoma leaves Manhattan Federal Court after facing charges on an insider trading scheme in New York August 23, 2013.

What would you do if FBI agents showed up at your house before dawn and informed you that the Justice Department had evidence that you had committed serious federal crimes? In November of 2011, Mathew Martoma, the former SAC Capital trader who stands accused of orchestrating what the feds call the most lucrative insider trading scheme in U.S. history, faced just such a scenario.

As the FBI agents outlined the severity of the charges facing Martoma, the former trader passed out cold on the front lawn of his multimillion-dollar Florida mansion. Was Martoma’s fainting spell evidence that he knew he was guilty? According to U.S. District Judge Paul Gardephe, the answer is no, which is why the judge ruled on Monday that the jury in Martoma’s case cannot be told about the episode. Prosecutors had argued that Martoma’s fainting spell constituted “evidence of his consciousness of guilt.”

The judge wasn’t buying it. “When an individual who works in the hedge fund industry is approached by the FBI and is accused of having engaged in insider trading in specific stocks and while employed at a specific company, it is likely to be a shocking and highly disturbing event, whether the person is innocent or guilty,” Gardephe said in a written order cited by Bloomberg News.

(MOREInside the Biggest Insider Trading Case in American History)

Judge Gardephe’s decision barring the fainting episode from being used as evidence against Martoma was one of several upbeat developments for the former trader as his $276 million insider trading trial kicks off in the Southern District of New York. Martoma, who has pleaded not guilty, worked for SAC Capital, the hedge fund founded by the reclusive Wall Street billionaire Steven A. Cohen. Martoma is charged with trading illegally on inside information he obtained from a doctor involved in a 2008 pharmaceutical trial for an Alzheimer’s drug. Martoma faces decades in prison.

Judge Gardephe also ruled that prosecutors can’t tell the jury that Martoma was fired from SAC for poor performance in 2010, nor can the government introduce evidence that a research analyst working for Martoma sought to obtain confidential information from another doctor about a different drug trial. The judge said that evidence does not pertain to the specific allegations in the case involving the Alzheimer’s drug.

Martoma’s prosecution is part of a larger, multi-year federal investigation into SAC Capital. Last year, SAC was charged with securities and wire fraud for a decade-long scheme in which the fund engaged in a pattern of “systematic insider trading” that allowed it to reap hundreds of millions of dollars in illegal profits. Federal prosecutors said Cohen’s firm engaged in insider trading “on a scale without known precedent in the hedge fund industry.” Last November, SAC agreed to settle the case by paying $1.8 billion and pleading guilty to fraud charges. Cohen has not been charged criminally, but faces civil charges for failing to supervise Martoma and another former SAC trader.