Judge rejects call to dismiss charges over Elan ADRs
A US judge rejected a request to dismiss some insider trading charges because they were based on Elan ADRs traded in New York.
US district judge Paul Gardephe in Manhattan said former SAC Capital Advisor's portfolio manager Mathew Martoma's alleged trades in American Depository Receipts of Irish drugmaker Elan qualified as domestic transactions covered by US securities laws.
Judge Gardephe said the Elan ADRs were listed and traded on the New York Stock Exchange, "an official American securities exchange," and that Mr Martoma cited no case to show that Section 10(b) should not apply.
The judge also rejected Mr Martoma's argument that because Elan's ADRs were mere "receipts," the trades qualified as foreign because "liability was incurred and title passed" when Elan deposited the associated shares with the Bank of Ireland.
"It is undisputed that the Elan ADRs at issue were traded on the NYSE, which means that the formation of contracts for those trades, the passing of title to those securities, and the incurring of liability on the part of sellers and purchasers of those ADRs occurred in the United States," said Judge Gardephe.
As a result, the judge rejected Mr Martoma's request to dismiss one of two securities fraud charges, as well as related allegations in a conspiracy count. The defendant has pleaded not guilty to the three counts, and faces a trial on January 6.
Mr Martoma's lawyer Richard Strassberg, a partner at Goodwin Procter, declined to comment.
SAC, the hedge fund run by billionaire Steven Cohen, pleaded guilty on November 8 to fraud and agreed to pay $1.8bn, including prior regulatory settlements, to end a federal insider trading probe. Mr Cohen has not been charged with a crime.
Prosecutors accused Mr Martoma of helping SAC affiliate CR Intrinsic Investors avoid $276m of losses in 2008 by recommending that it sell shares of Elan and Wyeth, based on a doctor's tips about poor trial results for a diabetes drug. Wyeth is now owned by Pfizer.
Mr Martoma argued that a key US insider trading law, Section 10(b) of the Securities Exchange Act of 1934, did not cover the Elan trades because a 2010 US Supreme Court decision limited the reach of that law to domestic transactions.
The 2nd US Circuit Court of Appeals, which hears appeals from Manhattan, extended that decision in August, Morrison v National Australia Bank, in finding that US criminal securities fraud laws don't extend outside the country.
US prosecutors have charged eight SAC employees with insider trading. Six have pleaded guilty, while Mr Martoma and portfolio manager Michael Steinberg pleaded not guilty. (Reuters)