Mathew Martoma, the former SAC Capital Advisors LP fund manager whose trial begins this week, won rulings limiting the evidence prosecutors can use to try to prove he made $276 million for SAC based on inside information from two doctors supervising a clinical drug trial.

Prosecutors in the case, which the government called “the most lucrative insider-trading scheme ever charged,” may tell jurors that Martoma was greedy, not that he fainted in front of FBI agents or was fired from his job, a judge ruled.

U.S. District Judge Paul Gardephe in Manhattan, who’s overseeing the case, agreed with Martoma that jurors shouldn’t learn that he fainted in the front yard of his Boca Raton, Florida home when confronted by two agents from the Federal Bureau of Investigation in 2011. Prosecutors argued the fainting spell is evidence Martoma knew he was guilty.

“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 ruling today.

Six-Year Probe

Prosecutors in the office of Manhattan U.S. Attorney Preet Bharara brought insider-trading charges against 83 people and four SAC-related companies in a six-year probe of fund managers, company insiders and expert networking firms. So far, 78 of the people charged in the probe, including traders from other firms as well as current and former SAC employees, have been convicted.

In November, SAC agreed to plead guilty to securities fraud and end its investment advisory business as part of a record $1.8 billion settlement of the government’s investigation of insider trading at the firm. The agreement must be approved by a judge before it can take effect.

The government is trying to prove Martoma made $276 million for SAC on shares of Wyeth and Elan Corp. based on insider tips.

Prosecutors have said they plan to call two physicians who allegedly gave Martoma inside information about disappointing tests on a drug intended to treat Alzheimer’s disease. The doctors, former University of Michigan neurologist Sid Gilman and Joel Ross, a New Jersey geriatrician and clinical associate professor of medicine at Mt. Sinai School of Medicine, agreed to testify in exchange for not being prosecuted.

SAC Reversal

The U.S. claims SAC reversed a bullish stance on the drugmakers, liquidating a $700 million position and selling the stocks short a few days after a 20-minute phone call between Martoma and SAC founder Steven Cohen on July 20, 2008.

Gardephe hasn’t ruled on a request by Martoma to introduce parts of Cohen’s 2012 deposition testimony before the U.S. Securities and Exchange Commission. Martoma has argued the testimony shows he wasn’t responsible for persuading Cohen to sell the firm’s Wyeth shares. Cohen hasn’t been charged with a crime.

If convicted, Martoma, who has pleaded not guilty, faces as long as 20 years in prison on each of two securities-fraud counts and five years for a single conspiracy charge.

Gardephe also ruled today that prosecutors can’t tell the jury Martoma was fired for poor performance in 2010, two years after earning a $9.3 million bonus for the alleged insider trades. The government argued that Martoma broke the law to keep his job.

SEC Communications

Gardephe today granted Martoma’s request to bar evidence that he instructed a research analyst to travel to a city on the pretext that she “happened to be in town due to unrelated matters” to question a doctor about a recent drug trial. The analyst, doctor and city weren’t identified. He also ordered prosecutors to give Martoma’s lawyers some material concerning the SEC’s communications with Gilman and Ross.

During a court conference this morning, Gardephe rejected arguments by Martoma’s lawyer, Richard Strassberg, that the government shouldn’t be allowed to “tap into the anger that’s out there against Wall Street” by telling jurors the alleged crime was motivated by greed.

“It’s entirely appropriate for the government to comment on that,” Gardephe said.

Gardephe also ordered Martoma to tell prosecutors whether he intends to offer an alibi for July 19, 2008, the day before his telephone conversation with Cohen. The government claims Martoma flew from New York to Detroit to meet with Gilman and discuss the negative drug trial results before they became public. The government won its request to call as a witness an airport taxi driver to show Martoma made the trip.

The trial is scheduled to begin tomorrow with 80 potential jurors filling out questionnaires to determine whether they can be fair. Martoma’s case will be heard by a jury of 12 with four alternates.

The case is U.S. v. Steinberg, 12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).

–Editors: Michael Hytha, Andrew Dunn