Written by Roy Black
The challenge – how to cross examine, impeach or even just diminish the impact of sympathetic witnesses without losing your audience? This was the challenge confronting the lawyers defending Matthew Martoma. Martoma, a former manager for the SAC hedge fund, is charged with securities fraud through insider trading. The SAC series of insider trading cases fascinates me because it involves highly intelligent, yet ethically challenged, securities traders, who amassed great fortunes using questionable and perhaps illegal methods.
The government has been after Steven A. Cohen and his SAC Capital Advisors hedge fund for ten years. Martoma is the eighth person who worked for Cohen to be prosecuted. All the others have taken deals or been convicted, and the company settled by pleading guilty and paying a $1.2 billion fine. The ultimate target is Cohen who has not been charged criminally but only civilly by the SEC. Despite the government onslaught, the firm still employs more than 800 people and maintains offices in several cities. Cohen is personally worth $9.4 billion. It appears he has been paying for the defense of all his employees.
The government alleges that right after Martoma received the confidential information, SAC sold off $700 million in positions in pharmaceutical giants Elan and Wyeth to avoid a huge loss, and then shorted the stock to realize an additional profit of $276 million. The government claims this is the most profitable single trade using insider information.
This case proves that information is the world’s most valuable commodity. Scientia potentia est. Knowledge is power. A billion dollar swing by getting data before anyone else. Of course that is a crime under our securities law if it is non-public information. This is not easy for the government to prove and it needs its own corporate insiders as cooperators willing to testify.
The government’s star witness and “insider” is Dr. Sidney Gilman, an 81 year old drug researcher who long sought a cure for Alzheimer’s and had published nine books and 240 articles during a highly distinguished career. Gilman testified that he at first “accidentally” passed confidential information to Martoma. He claimed he “slipped” in telling him about the deleterious side effects of an experimental Alzheimer’s drug. He admitted that after his slip he knowingly gave further detailed data on the drug’s failed clinical trial.
Gilman appears grandfatherly, vulnerable and fragile and has been taking anti-cancer drugs. A defense lawyer’s worst nightmare. And the government did their best to elevate Gilman while casting Martoma in an ugly light. Gilman testified that Martoma reminded him of his eldest son who had committed suicide, and suggested that Martoma used this to seduce Gilman, squarely placing most of the blame on their target Martoma. The government’s theme was that Martoma took advantage of a befuddled sick old man.
Despite the government’s efforts to paint him in a good light, Gilman came to the witness stand toting a lot of baggage. The government needed his testimony and gave Gilman a sweet deal. He received a non-prosecution agreement, a settlement with regulators requiring only repaying his consulting fees and retirement from the University of Michigan Medical Center in lieu of being fired. A pretty good global resolution of his myriad problems. All superior benefits the defense lawyer must explore on cross.
There are high stakes in this cross examination for Martoma because a month earlier, another former SAC employee, Michael S. Steinberg, was convicted of insider trading. Matoma’s lawyers are well aware that caution must be abandoned. This cross could go either way and maybe the difference between going home and 20 years in a federal facility.
The Art Science of Cross-Examination
Let me make this clear: There is no art to cross examination; It is a skill. A hard skill to master but a skill nonetheless. There is no reason to raise it to an art form except to unduly impress the uninitiated. I have spent my academic career teaching the skills of trial advocacy and know there is no genetically gifted trial lawyers. They are created, not born like Mozart able to play a symphony in court. It is a skill like all other trial skills learned through study, practice and performance.
Cross examination will make or break this case. The defense is hobbled because Martoma can’t testify. The court has allowed, over a defense 403 objection, evidence of prior bad acts if he takes the stand. Martoma falsified his grade transcript at Harvard law school and lied to an honor committee to cover it up. The court allowed this to be used on the flimsy premise that it proves he knew how to commit a fraud, but the real reason was to keep him from testifying.
This last part is mystifying to me. I think the judge should encourage, rather than discourage, a defendant to testify. Not only is that fair but also more likely to get at the truth. But I suppose assisting the prosecutors is a higher calling.
So how do you cross examine Gilman without causing the jury to hate you? Because the lawyer is in control, asks the questions and is the power figure, the jury views the lawyer as an abuser and the witness as the sympathetic underdog. If you hit him too hard the jury will bleed for him. When women start crying male jurors pull out their handkerchiefs.
I have learned these lessons the hard way. Once while cross examining a young lady who appeared only as a custodian of records she burst out crying. I had been trying to show she could not authenticate the records but she took my questions as an attack against her personally. I quickly retreated and conceded the point but the damage was done.
Gilman makes the case for insider information. The defense lawyer must challenge everything he has said. But carefully, diplomatically, quietly, understated, and politely. This is the time to keep your natural aggression under control. If he doesn’t understand a question, apologize and repeat. Keep strict self control. If you raise your voice or lower yourself to sarcasm, you lose. My weakness is always sarcasm. So I keep repeating to myself – if I wander from the program I will lose. Ask the same questions, use same tactics, still impeach, but do it low key.
Terry McCarthy calls it wielding a stiletto rather than a hatchet. He also coined the phrase looking good while cross examining; seeming to inflict damage but with safe questions. That will not work with Gilman. Real damage has to be inflicted. And forget the moronic advice of not cross examining the witness or if you do make it short as many so-called authorities proclaim. Silence in the face of damning accusations is not an option (if you do remain silent, be sure to notify your malpractice carrier right after court). It is like telling someone don’t take the Ferrari out of the garage but if you do don’t go over 30. I say move over and let someone drive who has the balls to put the accelerator to the floor.
In any case worth going to the jury you must dispute the testimony. Otherwise why try the case? Silence about what counts is not golden; it is the coward’s way out. In a white collar crime case involving fraud charges this is even more true. Gilman has to be painted as unreliable, self-absorbed and even dishonest. He was in this to make money, not “teach” science to these guys.
A fertile area for cross was his work as a paid consultant for Gerson Lehrman, an expert-networking firm that connected industry experts with hedge funds like SAC. Two expert network companies, Primary Global Research and Gerson Lehrman Group, which Martoma used, were caught up in the probe. Their “product” was connecting researchers and scientist in these drug trials with investors and hedge fund guys. Neither firm has faced charges and both are still in business.
Gilman admitted he was paid $1,000 an hour by Gerson Lehrman to “consult” with these hedge funds. While his salary at the University of Michigan was $300,000 annually, his consultant fees were $425,000. What did these hedge-fund investors expect to get for a $1,000 an hour? I have a hard time seeing where the line is crossed from public information into insider information. So why were Martoma’s meetings with Gilman any more sinister than the other financial guys?
Mr. Martoma met Dr. Gilman in January 2006 through Gerson Lehrman. In a line of questioning that became tense at times, Mr. Strassberg (the defense lawyer) asked Gilman about his other consulting work in an attempt to cast doubt on the credibility of his detailed testimony about his dealings with Mr. Martoma. But Gilman had a convenient failure of recollection.
Before you can get anywhere with Gilman you first must undermine his sympathy factor. Expose the ugly part the government glosses over. Get the jury’s attention immediately or they will stop listening. Here is my suggestion for the opening questions:
You must be very smart to have graduated from those schools
Very smart to teach at the medical school
Very smart to chair the neurology department
Very smart to be chairman of the safety committee for these clinical trials
Very smart to have written all those books and articles
Very smart to have struck this deal with the prosecutors
You have always shown superior intelligence
You know what insider information is
You know it is illegal to disclose it
Yet you threw out the lure of it to these hedge funds
That was what these meetings were all about
You knew all the hedge funds wanted information
Information they would trade on
You have been briefed about that
You took this job to speak with hedge funds
You know where the line was drawn
But for a thousand dollars an hour you turned a blind eye
Did you make a conscious decision to lie
A conscious decision to lie to the FBI
A conscious decision to lie to the prosecutors
You successfully lied to them for a year
You had to know what you were saying was a lie
You are a smart man
You are a good liar
You are dishonest
You lied to avoid responsibility for your actions
You lied to avoid personal problems
You deceived a lot of people
You deceived them right to their faces
Now you are under pressure to satisfy the prosecutors
You changed your story to satisfy them
Only then were you let off the hook
You are 81 years old
A prison sentence would be a life sentence
In an ugly place
You convinced the prosecutors you could help them
Help them convict martoma
You auditioned for them
You can make people believe you are telling the truth
You have the look of a nice man
Yet underneath it all you can lie, deceive and manipulate
In those many dozens of meetings with the prosecutors they fed you information
Information you are now using in your testimony
That is why you remember so much about Martoma but not about anyone else
The Likeability Quotient
We don’t like angry people. Yelling even raised voices turn us off. We stop listening. So communication goes down as the volume goes up. See this article on likeability from A2L Consulting .
If you watched the Seattle Seahawks defeat the San Francisco 49ers recently you saw a good example on this with Richard Sherman. See here his 18 second trash-talking rant (Andy Warhol’s 15 minutes of fame is now condensed to 15 seconds!). He didn’t say anything that controversial but he came across angry, almost frightening. Erin Andrews looked afraid of him. Richie Zyontz the Fox producer explained the premature cutoff of the interview: “I thought it was compelling television, but it started crossing over a line I didn’t want to see it go…. It started to get a little dangerous for us.” When Fox bails out, you know it is serious.
Part of this bears on the likeability variable. We are more likely to believe someone we like. On the other hand we don’t want to listen to or like a nasty person. It would be foolish to make a person mad then ask for a favor. Like a salesman criticizing the buyer’s color selection while trying to sell him a new car. This means adopting a friendly demeanor and asking questions in a friendly tone. Despite the desire to demolish the witness who is driving you batty. Courteous when you want to lash out. Keep an eye on the jury to gauge their reaction.
Gilman has shown memory and confusion problems both on direct and cross. In opening, the defense argued his memory was impaired due to his cancer treatments. Gilman, when asked to identify Martoma, looked around the courtroom seemingly confused until he focused for several minutes on the defense table and discovered Martoma. He couldn’t hear many questions despite wearing hearing aids, and his memory appeared faulty for critical dates.
The goal was to expose confusion as such matters as time, dates, people, wording and to accomplish this not in an unfair way and without badgering. The defense seemed to accomplish this. While Gilman recalled with great clarity his meetings and conversations with Martoma, he was unable to recall dozens of meetings with other hedge funds he consulted with. He testified that even though he met with analysts and traders working for hedge funds like Citadel Caxton Associates, Magnetar Capital and Maverick Capital, as well as money managers at JP Morgan Chase and Putnam Investments, the only meetings he recalled with clarity were those with Mr. Martoma. “I don’t remember these names; just a few stand out in my memory,” he said in response to questions about other consultations he had done.
“There still remain some holes in my memory.” and Gilman said he recalled only two weeks ago the full details of Mr. Martoma’s visit to his office in July 2008 — the meeting, during which Dr. Gilman said he relayed confidential information to Martoma.
Dr. Gilman also had difficulty remembering a October 2006 meeting arranged by Gerson Lehrman for him to meet a number of hedge fund clients, including SAC. It was during this meeting that Gilman first met Martoma.
Strassberg questioned the doctor about a meeting he had with an analyst from a small hedge fund in June 2008. He repeatedly asked Dr. Gilman about specific details of their conversation concerning the clinical drug trial. To each question, the doctor responded that he could not recall, though he did not deny something may have been said. “I may have, but I don’t recall doing so, sir, ” Gilman responded at one point.
The defense has some advantages with this witness. Psychological research has shown that some jurors have a bias against an older witness who they see as unreliable. They accept that old age affects memory and cognitive functioning. They are also more suggestible than a younger, more vigorous witnesses. The federal prosecutor spent many sessions prepping this witness and “assisting” his memory.
The Reported Cross Examination
I have not been in the courtroom, so all I know about the testimony is filtered through reporters and their editors (playing Dupin in Poe’s The Mystery of Marie Roget). They are more interested in the newsworthy bits rather than the technique, but I won’t let that stop me from making some observations. I have distilled the following from articles reporting on the cross.
Gilman at times took long pauses before answering questions. He continually asked the defense lawyer to repeat the question.
The defense got him to admit that he lied to the F.B.I. agents, the SEC and the federal prosecutors for a year but he quickly volunteered he was now telling the truth. Obviously a canned response taught to him by the prosecutors. The defense suggested he began to cooperate with the government after becoming aware of how much jail time he could face. But the doctor said the prospect of potentially dying in prison and being financially ruined did not terrify him. Sure.
The judge intervened after some defense questions stating they had too many “compound clauses.” This is a strange comment since classic cross-examination consists of short questions devoid of adjectives, adverbs and clauses of any type. We speak in short declarative sentences only.
The Final Arguments
Predictably, memory became the theme of the defense final argument. Strassberg spent much of his 2 hour and 45 minute closing attacking the credibility and reliability of Gilman.
Strassberg ridiculed Gilman’s testimony that he originally could not recall the meeting in his University of Michigan office where the disclosures allegedly occurred, yet testified that his memory evolved and he recalled key details shortly before taking the witness stand.
Strassberg also argued that Gilman said he couldn’t recall details of the meeting in six sessions with U.S. authorities starting in February 2012. According to Gilman’s testimony, the doctor only recalled specifics of the Michigan meeting 707 days later, while the jury was being selected. Strassberg put a slide with the number 707 on a large screen as he argued this. I love using a demonstrative with just a number or picture on it rather than bullet points. It makes the number unforgettable in the jurors’ minds. “There is no way a reasonable person can say I have confidence of what he said happened in July. ”
Strassberg asked jurors: “How in the world can the prosecutors try to convict someone of a serious federal crime based on this testimony?” He tried to convince the jury that Martoma was a small fish being sacrificed in a larger government fishing expedition. Martoma was caught in the middle of a quest to spear the Wall Street white whale. “It’s frighteningly scary if you get in the way of a government investigation targeting someone like Steve Cohen.”
The Government Rebuttal
This case once again demonstrates the power of rebuttal. Few rhetorical tactics carry a punch as strong as the rebuttal, whether in a courtroom, on a political stage, or in a debate. It is a huge advantage given solely to the government under the pretense they have the burden of proof. We lawyer/thinkers put a lot of significance in the concepts of primacy and recency. Psychologists tell us the power is going first and last. And the prosecution gets both. In our culture we accept there is an extreme advantage of getting the “last word.” So why in a system allegedly designed to protect the rights of citizens does the government get such advantages? And why are they so readily accepted?
I believe the real purpose is to give prosecutors the power to defuse the defense without fear of contradiction because we don’t trust juries to get it “right.” Thus we want to give prosecutors the advantage. The irony is that the public believes all the so-called technicalities favor the defendant. If they only knew.
The prosecutor argued he has been telling the truth on the stand and has no reason to frame Mr. Martoma. He followed government prosecution 101 by using Gilman’s plea agreement as his proof. Gilman’s best protection was to only tell the truth since any lies would queer the deal. As he finished his argument Devlin-Brown told the jurors that Dr. Gilman lying about his involvement in Mr. Martoma’s case “ would be one of the craziest things for someone to do.”
The jury reached a verdict after a little more than two days of deliberation. A short time for a case of this complexity and magnitude. The rule of thumb is a day of deliberation for each week of testimony. The trial lasted four weeks. Substantial proof the jury was convinced by Gilman. Somewhat unusual for a case built on cooperator testimony.
With Martoma’s conviction, the SDNY has an unbroken string of convictions in insider trading cases. Martoma is the 79th person to either plead guilty or be convicted since this crackdown on insider trading the $2.2 trillion hedge fund industry began in 2009. The defenses that have been thrown up are not working, so why persist with them? Lack of imagination? Afraid to try something new? Or afraid to take on the SDNY?
Attacking the “Enhanced” Memory
The government cleverly manufactures memories. The clues are there and it doesn’t take Sherlock Holmes to follow them.
Strassberg told part of the story: “ He’s not remembering, he’s creating.” He urged jurors to question Dr. Gilman’s memory and motivations whose memory was “ever-changing” and who lied about recalling details he only knew from reviewing evidence with prosecutors shortly before the trial. “You can’t rely on anything he said to prove anything beyond a reasonable doubt,” he said. “Without his testimony, the prosecution has no case.”
He called it a “moving story” that had “evolved” over time. “No one should be convicted on the evolving memory of Dr. Gilman.” He pulled up transcripts where Mr Gilman changed his testimony, and urged the doctor was “trying to find stories to fit the documents he was reading.” He tailored his story to the government’s case, rather than telling the jury what he actually recalled. “He’s not telling you a story he remembers, he’s telling you a story the prosecutors like, so he can get his deal.”
This reminds me of a wonderful Abe Lincoln as trial lawyer story. A young boy runs up to his farmer/father saying “the hired man and sis are in the hayloft and she is lifting up her skirt and he is pulling down his pants and they are fixing to pee all over the hay.” The farmer said “Son you got the facts right but you are drawing the wrong conclusion.”
Gilman is a smart man but out of his element. He doesn’t have the knowledge or experience to create and sustain a story like this by himself. He is only a follower being led by those far more experienced and clever in the way juries think.
As we see once again making the cooperators lie to get his deal didn’t work. It is hard for the jury to swallow especially with a respected an elderly doctor/researcher/teacher/writer like Gilman. He can’t be trashed. I don’t think he deliberately lied but I am sure his “memory” was molded to fit the prosecution’s case. This is not to say it was false, since I don’t know the truth, but the chance of it being fully accurate is small.
The government tactic of “interviewing” over and over again until the story is just right is dangerous and has to be exposed. The problem of course is that no one outside of those meetings knows what went on. There are no written reports and the molders certainly aren’t telling. The witness will claim ignorance on how it all transpired. Usually they can’t even tell you how many meetings there were. Gilman grudgingly admitted to working with the prosecutors “a couple of dozens of times.”
The government admitted that the FBI lied to Gilman to get him to cooperate. They falsely claimed to have tapes of his conversations with Martoma. This was used as a lever to get him to speak. How far it went, such as claiming he said things, is unknown.
The answer is to take the offensive. Subpoena the records, diaries, notes and emails about them from the government prosecutors and agents. File Brady letters demanding the information. Use the authority of United States v. Sudikoff, 36 F. Supp 2d 1196 (C.D.Cal. 1999) to force the government to disgorge these materials pursuant to Brady. The Sudikoff judge ordered the government to provide all reports and notes that showed any change in the witnesses testimony from the initial version to the final one. We need these documents to expose the process.
There also seems to be a quirk or blind spot about this process in New York. The graduates of the SDNY are eternally loyal to that office. It affects how they defend a client. No criticism shall pass their lips. It limits them since defense lawyers today must question overbearing government tactics from the NSA to the IRS and even to the SDNY. This is the era of Snowden, Wikileaks and heightened distrust of government. And the culture of “thou shall not question the SDNY” is counterproductive.
I checked Mr. Strassberg’s bio on his firm website:
“Rich Strassberg, cochair of Goodwin Procter’s Securities Litigation & White Collar Defense Group … Prior to joining the firm, Mr. Strassberg was the Chief of the Major Crimes Unit in the United States Attorney’s Office for the Southern District of New York, responsible for supervising approximately 25 Assistant United States Attorneys in the prosecution of white collar criminal cases.”
Martoma was sentenced to 9 years in prison which was a harsher penalty than most of the other 84 people who were convicted of or pleaded guilty in the insider trading investigation. “The conduct at SAC was not aberrant conduct,” Judge Gardephe said, noting that before getting a job with Mr. Cohen’s firm, Martoma was expelled from Harvard Law School for doctoring his transcript. The judge also said, “The sums here are staggering, and the size of the punishment must be sufficient to deter others.” Martoma was also ordered to forfeit a $9.38 million bonus he earned while working at SAC in 2008. The forfeiture includes the luxury home in Boca Raton, Fla., that the couple bought in 2010 for about $2 million.
Federal prosecutors never charged Cohen with any wrongdoing, but he still faces a civil regulatory action that could permanently bar him from working in the securities industry. In pleading guilty, SAC paid $1.2 billion in fines and penalties to federal prosecutors. It also paid a little more than $600 million in fines and restitution to the Securities and Exchange Commission.
Martoma is the eighth trader or analyst who worked for Cohen to either be convicted at a trial of insider trading or to plead guilty to charges of improper trading.